Summer is finally creeping up on us and it’s time to jump on some links!

1. Dividend Growth Investing And The Joy Of Doing Nothing @ Dividend Mantra.

2. Understanding Dividends vs Distribution @ The Passive Income Earner.

3. The Risks of High Yielding Investments @ Dividend Ninja.

4. How Warren Buffett made his fortune @ DGI.

5. Going For A Premium Valuation @ Dividend Ladder.

6. Time For A Fresh Look At Facebook ($FB) @ IS.

7. Automatic Data Processing Inc. (ADP) Dividend Stock Analysis @ DGS.

8. What are I Bonds and Why I’m Buying @ Retire by 40.

9. Are You Too Scared to Invest Real Money in Stocks? Try This! @ Studenomics.

10. Carnival of Personal Finance #415 – Memorial Day Edition.

I have been quiet since the beginning of the year with regards to my portfolio. Back in January, I had some shares of Apple (AAPL) and had put a hold on my stocks. Like many other investors, I wasn’t sure about where the market was heading. As it has been surging since then, each day was another one telling us that we are closer to a market correction. This is why I am sitting with roughly 10% of my portfolio in cash for four months. Last week, I made three trades: 1 sale and 2 buys….

Guess Which Stocks I Sold….

Here were my positions before I made my trades:

5N Plus (VNP)

Apple (AAPL)

ScotiaBank (BNS)

Chevron (CVX)

Coca-Cola (KO)

Husky Energy (HSE)

Intel (INTC)

Johnson & Johnson (JNJ)

Seagate Technology (STX)

Telus (T)

National Bank (NA)

Altamira US Index Fund (NBC846)

Nope… I didn’t sell VNP (not yet!). A few weeks ago, I published an extensive review of Seagate Technology (STX) over at Seeking Alpha (you can read it here). I explained how the company is at a crossroads and absolutely needs new technology development. The stock seems to be closer to a value trap than anything else. When I bought it a year ago, it was a huge bargain. Today, I’m not sure I would buy the stock again now that it has risen greatly over the past 2 years. This is why  decided at the beginning of May to put a stop sell on the stock. A stop sell is a great way to protect your profit as it triggers the transaction only when the stock is on a slump and hits your “stop price”. The stock was hovering around $42 when I put a stop sell at $40. It quickly dipped to $40 and then when back up during the month. This is how I got rid of a great stock at $40 while it seems that I could have kept it and continued to cash its dividend.

I don’t really mind as I would rather cash out the money and run than wait longer and miss another buying opportunity. It always sucks when you sell a winner in your portfolio, but the most important thing is to know why you bought it in the first place. I bought STX at the beginning because the valuation was ridiculously low. I knew that with such cash in their bank account, STX would increase its dividend and the stock would benefit from the overall market swing to show some profit. I was right. But this stock is quite volatile and it could probably end-up at $35 if things turn sour or jump to $50 by the end of the year if the next two quarters are showing some growth. But here’s the problem; revenue guidance for 2013-2014 is going down. What’s the point of buying a company where sales are slowing down? This is why I pulled the trigger.

Who Are My Lucky Ladies?

If you read my Disney (DIS) stock analysis from last week, you probably have an idea that I’ve ignored one of my dividend growth model rules to buy an incredible stock paying less than 3%. In fact, Disney is not even paying 2% in dividend (stock yield is about 1.15%). So why sell STX with a yield on cost of purchase at 6% to buy a stock yielding 1%??? The answer lies in three words:

Sales

Growth

Potential

Disney as an incredible business model, the most amazing brand for children and families and they just bought the licence for the next Star Wars’ Movies. After seeing what they have done with their rights on Marvel Super Heroes and their incredible success at the box office (please don’t forget the billion derived products), it’s a no brainer that DIS will show huge growth in the upcoming years. ESPN is protected by the “cable invasion” as I call it as there is no point of seeing sports events a week, a month after it happens. People want to see their sports live and this is why ESPN will be around even if several cable channels will suffer in the future. The current P/E ratio is relatively high but the forward P/E ratio is reasonable. I have a crush for growth stocks… I just can’t ignore one when I see it. Even if it means reducing my dividend yield!

My second buy is another great company that I intend to hold forever. Even though I’m not a big consumer of their products, this company is definitely among the most solid in the world. Since I don’t even drink Coke (nor Pepsi ), I thought I could still buy Mcdonald’s (MCD). I’ve done an analysis of this great company last year (here’s the analysis). At that time, I wanted to buy the stock at $89 but didn’t have any cash lying in my account. When I did my RRSP contribution back in February, the stock was close to $100 and I didn’t want to dive in at that price.

Now that I had more cash to invest, I had a second thought about MCD; the company is awesome and I want to hold it forever. What’s the point of waiting to buy it then? This is why I ignored the relatively high price I paid and proceeded with the transaction. Over time, MCD will continue to grow regardless of what will be happening with the stock in the next 12 months.

Three Lessons Learned From These Transactions

There are three things to remember about these transactions. They are the basics of investing:

#1 Sell when you make money and when the stock no longer shows the reason why you bought in the first place. Most importantly, never look back once it’s sold.

#2 A great stock can be bought even if it doesn’t meet all your investing criterion. If the company has something to compensate for its weakness (dividend yield in this case), it mean it could be a good investment.

#3 Market timing for a stock is meaningless. You should buy dividend stocks with the intention of holding them forever. Therefore, the buying price doesn’t matter that much. Buy a great company when you have cash in your account. Period.

What do you think of my trades?

I’ve carefully been looking at the market and what I see is beautiful…

While several investors are calling for the next Black Swan, I see many reasons why stocks will continue to rise for a good while.

By definition, a Stock Short Squeeze is when short sellers are forced to buyback the stock they are currently short since the stock keeps going higher and higher. When an investor thinks there is a short play (e.g. a company stock will eventually drop as it is overvalued), the investor can short sell the stock. The point is to sell a stock he doesn’t own in his portfolio since he thinks he sell the stock is now at a price of eg. $40 without owning shares and buys it back (to cover his position) at $25 after the drop occurs. However, if the investor is wrong and the stock keeps going higher, he will be forced to buy the stock at $60 instead to cover is sale at $40. This is a stock short squeeze.

I’m taking this expression and calling it simply a stock squeeze for the market in general. The high demand for stocks is pushing their prices (and valuations) to higher levels each month now. Is it a bubble growing or simply the fact that stocks are in demand right now? Let’s take a closer look…

From Bonds to Equity

After 2008 and for a few years after, there was a massive amount of money that had left equities to go back into bonds and money market funds. Investors sold their positions and went “on the side lines” to watch the game.

After the interest rates dropped around the world, bond values naturally went up by a lot. This situation was good for a few years but the good old days of a bond portfolio making 6-10% is over. Interest rates have been at their lowest since the end of 2008 and as older bonds mature, they are replaced with very low yield investments. Plus, the more you wait until maturity, the more the capital gains created on paper due to the interest rate drop disappears (as you are receiving the high interest in your pocket).

This is why investors looking for income have no other choice but to consider stocks again to make sure they beat inflation and don’t take too much risk on their capital. This is why we see the same money that had left equities a few years ago coming back and increasing the demand for stocks…especially dividend stocks!

Record Profits Keep Climbing

During the first quarter of 2008 (right before things went sour during the summer), the S&P 500 P/E ratio was at 21.90. As I’m writing this article, the P/E ratio for the fourth quarter of 2012 was 16.49.

In other words; you are paying less for a stock today than in 2008 for the same profits. The good news after that is that there is no current bubble right now. The S&P 500 is not doped by some irrelevant techno stock valuation model based on visitors instead of profits. It’s not doped by the ever increasing housing value generated by unlimited access to ATMs for consumers. Profits are just great in a tough economic situation. Can it go higher? Asking the question is answering it.

Share Buybacks through the Roof

How many share buyback program announcements have you read about in the past 18 months? Listing them would take me forever! The reality is that several companies have lots of liquid cash in their bank accounts and they all decided to support their stock values (read pushing it forward) by buying back their shares massively.

This is another factor pushing the demand for stocks on the market.

Dividend Yield Still Over Bond Yield

There is a simple concept in investing: when the average S&P 500 dividend yield is over the 10 year Treasury note interest rate, it’s time to buy the market. Here’s the answer to your question:

The return from dividends since 2009 is sitting at 2.60% while the 10 yr Treasury note shows a 1.68% interest payment. Do you understand better why investors are leaving bonds to buy equities

What I like the most about this graphic is the recent spread between the dividend yield and interest rates. While the FED is pushing interest rates down with their bond buyback program, many companies increased their dividend payouts. This is definitely a great combination for dividend investors!

Interest Rates to Stay Put

There is not much to say about interest rates these days. We are running under a stormy cloud where Governments don’t want to increase interest rates any time soon. The FED won’t do anything until 2015 and chances are that many other countries will do the same. Actually, the European Central Bank and the Central Bank of Australia both decreased their rates lately. The International Monetary Fund is even considering a negative interest rate for banks who wants to put their cash in their bank account instead of lending it!

In other words; lending is cheap, companies will benefit from that and profits will continue to increase accordingly.

For these reasons, I’m bullish for the rest of the year… and I’m actually going to make some trades in the near future…

Let’s jump right into the links today:

1. Cisco: Let Me See That LONG @ Barel Karsan.

2. Dividend Yield on Cost Is Irrelevant @ IS.

3. 6 Confident and Secure Companies Boosting Dividends @ DGS.

4. Dividend Stock Holdings Of Top Hedge Fund Managers @ Dividend Ladder.

5. Two Reasonably Appealing Stock Ideas @ Dividend Mantra.

6. Best Brokerage Accounts for Dividend Investors @ DGI.

7. What Happens to Bonds When Interest Rates Rise? @ Dividend Ninja.

8. Life Insurance And Estate Planning @ The Passive Income Earner.

9. Investing In Gold And Silver @ Retire by 40.

10. Carnival of Personal Finance #410.

Following my analysis on Mattel (MAT) and Hasbro (HAS) from last week, I’m closing this toy stock series with the most famous company in the eyes of children: The Walt Disney Company (DIS).

Note: The stock is currently showing a dividend yield of 1.14%. This definitely does not fit my Dividend Growth Investing Model. But the company has recently started to increase its dividend and it makes a great comparison to Mattel and Hasbro who are pretty much alone in the toy industry paying distributions over 3%.

Disney (DIS) Business Description:

If you have been hiding under a rock for the past 80 years, you may ignore that Disney is THE reference for family entertainment. The company is divided into four sectors:

#1 Media Networks (ABC Family, ESPN, Disney Junior, etc)

#2 Parks & Resorts (you need to visit one in your life)

#3 Studio Entertainments (Pixar, Walt Disney Pictures, Marvel banners)

#4 Consumer Products  (Mickey Mouse, Cars, Disney Princess, Winnie the Pooh, Toy Story, etc, etc, etc)

Founded in 1923 by Walt & Roy Disney as The Disney Brothers Cartoon Studio, Disney is today the world’s largest media conglomerate in terms of revenues. Disney has recently hit several home runs with the acquisition of Marvel where they pump a Heroes movie out every six months. After the huge box office success Avengers in 2012, Disney is coming back this year with Iron Man 3 and Thor – The Dark World. This is not to mention their animation studios produced Brave, Frankenweenie & Wreck-it-Ralph (which I really liked!) all in the same year.

The ability to generate important movie success is amplified tenfold by their talent to produce fifty-six-billion of connected consumer products. As it wasn’t enough, Disney bought the license to “close” the Star Wars story with the “last” trilogy.

DIS Stock Graph

DIS Dividend Growth Graph

As I mentioned at the beginning of my analysis, DIS is not known as a super powered dividend stock. With a small yield of 1.14%, it could never be part of my portfolio. However, the recent dividend payout growth is interesting if management keeps it this way. The dividend growth over the past 5 years is at 16.47% while they made a big jump last year as per the following graph:

Most importantly, Disney shows they have huge room to increase their payout in their future with a current payout ratio under the bar of 50%.

But don’t get me wrong, with their massive projects, Disney requires a lot of liquidity to fund them and apply their magical marketing recipe. If I had the choice, I think I would buy the Disney marketing recipe over Coca-Cola’s magic formula .

The Company Ratios and Financial Info:

When I look at the numbers, I can’t be disappointed. Both sales AND profits are up while the company boosts its dividend. You can even go back ten years and still see an awesome growth in revenues:

Same story with the earnings:

We can see that after the economic crisis of 2008, they rapidly recuperated their swing to boost 2011, 2012 and now 2013 sales and profits. The company is definitely solid.

DIS Stock Technical Analysis

DIS is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on DIS.

Disney Upcoming opportunities and dangers:

With such a large brand portfolio coupled with multiple acquisitions, Disney counts on several opportunities to continue to grow. Since Americans have cleared a part of their debts during the past three years, chances are they are more inclined to spend more in the upcoming years in entertainment.

The other point that convinced me about the company was my personal trip to Disney World last winter with my three kids. Everything was perfect. I mean EVERYTHING. Their ability to think about the unthinkable and make the customer experience his best family vacation souvenir ever is almost unreal. A company with such dedication to detail is definitely a keeper for a portfolio.

As for the dangers, we often mention their media network division to be at risk seeing possible cable erosion. This could be a possibility if Disney’s brand wasn’t as strong in our minds. Kids will want to see Disney’s cartoon and movies while adults will always be looking forward live sports on TV through ESPN.

The downside? A relatively high P/E ratio currently sitting at 20. Considering the company’s growth potential in the upcoming years (do I have to mention how much money you make on a Star Wars Episode?), this is a calculated risk. Mind you, several great stocks are trading around 20 P/E ratio right now. It might not be the best time to buy the stock, but I don’t think there will be a major pull back either.

Final Thoughts on Disney

The more I read about Disney, the more I’m seduced by this company. It bites me that it doesn’t pay a higher dividend… But I’m still considering this stock as it has been paying a dividend for the past 14 years. Based on my analysis, DIS looks like a great complement to my portfolio. Still, I’m not making any trades at the moment.

Disclaimer:  I do not hold shares of MAT, HAS or DIS

I hope you all have a great long weekend! Any plans?

1. Building Wealth Through Dividend Investing @ Dividend Ladder.

2. International Allocation through Conglomerates @ The Passive Income Earner.

3. Reinvesting Dividends @ DGSI.

4. Is Coca-Cola the perfect dividend paying stock? @ My Own Advisor.

5. What advice I would give my 23 year old self @ Retire by 40.

6. Rackspace (RAX)… Buy, Sell or Hold? @ IS.

7. One Year Older, One Year Closer @ Dividend Mantra.

8. T. Rowe Price Group Inc. (TROW) Dividend Stock Analysis @ DGS.

9. Time To Bust Some Financial Myths @ Financial Uproar.

10. IFON You Up With A Deal @ Barel Karsan.

On Monday, we looked at the toy industry with Mattel (MAT). Following up on this series, we will check out another important player in the industry; Hasbro (HAS). While Mattel is part of my Best Dividend Stocks for 2013, Hasbro was part of my selection for 2012. The company has been up by 32.34% this year and was up by another 12.57% for 2012. After a gain of almost 50% in 17 months, is there any more room for profit of have you missed the train?

Hasbro (HAS) Business Description:

Hasbro is a worldwide leader in children and family entertainment. It is mostly known for their numerous toy brands such as Playskool, Tonka, Milton Bradley and Parker Brothers. They are the 2^nd largest toy company behind Mattel and have several trademarked franchises such as Transformers, Star Wars and Marvel action Heroes. Since they can’t stop making Marvel Heroes movies and the Star Wars licence was recently purchased by Disney for additional movies, we can expect Hasbro to head back to its peak at the end of 2011:

Their business strategy is based on a continuous flow of new partnerships to make innovative toys in the industry. Back in the 80s, Hasbro had made some strategic moves through the acquisition of Milton Bradley (who knows Monopoly?) and the creation of Transformers. End of the 90s and beginning of 2000s, Hasbro had acquired the licences for Star Wars and Marvel toys. We can deduct that most of their sales growth will be attributed to the movies for which they have the licence for complementary products.

Hasbro was quite aware that it was a bit risky to gamble their revenues based on Hollywood and their mood swings. This is why starting back in 2008, they focused on creating or innovating within their own brand. Some of their flagship owned brands such as My Little Pony and Magic The Gathering were pushed to another level to make sure that Hasbro could have great years even if the movie industry sucks.

As at 2012, Hasbro had the following market shares:

USA 12.7%

Western Europe 8.3%

Mexico & Brazil 11.5%

Their most recent investor presentation shows a 10 year net  annual revenues growth of 4% annualized return. But if you look closely at the graph, you notice revenue stagnation since 2008.

HAS Stock Graph

HAS Dividend Growth Graph

One snap shot at the dividend payout for the past five years and you will fall in love with the stock:

But a second look at the payout ratio rises a red flag:

Due to a difficult year (even Hasbro management admits it), the payout ratio has gone up compared to its previous year. 2013 seems brighter since it already dropped from its peak of 2012.

A look at their Earnings Per Share also tells me the same story: Sales and profits have a hard time growing in this tough economic period:

The Company Ratios and Financial Info:

While the dividend metrics look great for now (high dividend growth, relatively high dividend yield and payout ratio back under 60%), sales stagnation worries me.

HAS Stock Technical Analysis

HAS is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on HAS.

Hasbro Upcoming opportunities and dangers:

Hasbro has a strong position in the US with 52% of their sales coming from their main market. They also did a strong incursion in the Emerging markets with over 10% of their revenues coming from the fastest growing countries of the world. Nonetheless, this doesn’t seem enough to keep Hasbro growing.

The company has aggressively given back a lot of money to its investors through share repurchases and the major dividend growth policy. Based on the classic financial theory; a company is paying dividends when it doesn’t see growth opportunities. I think Hasbro should maybe slowdown on the dividend growth and focus on creating more innovative toys. In my opinion, this company is still a little bit too much linked to the movie industry.

I guess the upcoming heroes movies and the next Star Wars Trilogy are both great news for both Hasbro and its investors!

The reason why I had picked HAS for 2012 was based on its record year of 2011. While the stock did well, the sales and earnings dropped throughout the following years. However, the first quarter of 2013 is showing growth in revenues, profits and EPS. This is probably why the stock has gone up, doped by the overall bull market feeling.

Final Thoughts on Hasbro

If I was a Hasbro stock owner, I would probably hold on the stock and watch the next quarters carefully. If 2012 was simply a bad year in the economic cycle and 2013 shows growth, I would be quite optimistic with regards to the future of the company. However, if sales still stagnate, I think it will be time to cash out the money and run.

What do you think? Are you a Hasbro fan?

Disclaimer: I do not hold HAS or MAT in my portfolio.

The month of May is starting out strong on the stock market as most investors are patiently waiting for a correction. Since it’s spring time and we are all looking to spend more time  playing outside, I thought of doing a small analysis series of toys & entertainment dividend stocks. Today we start with Mattel (NASDAQ: MAT), a stock showing a year-to-date return of +23.84% as at Monday May 6^th before the market opening. This stock has been selected at the beginning of the year to be part of my book of The Best 2013 Dividend Stocks.

Mattel (MAT) Business Description:

Mattel is one of the biggest toy manufacturers, marketers and distributors. It has an impressive portfolio of brands including all-star names such as Fisher-Price, Little People, Barbie, Hot Wheels, Polly Pocket along with several Disney, Comic Book and Cartoon characters and related products.

Strong from a record year in terms of sales for 2012 (over $7 billion), Mattel continues to grow its numbers year after year. The biggest part of the growth comes from its “American Girl Brands”. While Barbie is slowing down, Mattel showed up with the American Girl! Since Mattel’s business model sells most of their toys at an affordable price, they also did well in international markets. China, Brazil and India continue to support the international sales.

The management team is led by a cool motto: “My motto is to be happy, but never satisfied”. I think all management teams should keep this in mind!

MAT Stock Graph

MAT Dividend Growth

The dividend payout continued to grow over the past 5 years including some important dividend increases recently (from $0.31 to $0.36 in early 2013). With a payout ratio under 60% (55%) we can expect Mattel to continue increasing its dividend in the future.

When I look at the EPS graphs, you can see a strong uptrend in the past three years:

The Company Ratios and Financial Info:

The company shows steady growth in terms of earnings, sales and return on investment. Considering the current market, the P/E ratio is not too high (17.73) and the forward P/E ratio is at an attractive value (14.57). These indicators tell me there might be more room for stock appreciation if Mattel keeps delivering strong numbers.

MAT Stock Technical Analysis

MAT is currently trading on a strong uptrend. It might be a good time to enter this stock. Click here to get a free stock analysis report on MAT.

Mattel Upcoming opportunities and dangers:

Strengths:

In October 2012, Mattel topped estimates and even raised Holiday sales forecasts. With a very strong brand portfolio combined with an increasing consumer confidence, MAT is going through the Holidays with a smile. With its world leader position, Mattel will continue to rack-up the sales in 2013. The dividend payout ratio is low and the 5 years dividend growth (12.28%) shows a strong dividend policy.

What I really like about this company is its ability to grow its sales and profits during a tough economy. Americans have cut back their expenses to pay off their debts while the unemployment rate rages in Europe. Nonetheless, Mattel continues to sell toys worldwide with a smile. This tells you a lot about a company business model’s strengths.

Weaknesses:

The switch from traditional toys to electronic definitely affects MAT. The traditional toy market and most important retailers (such as Toys’R’Us) have been facing slow growth while computer games, gaming consoles and tablet games have been increasing significantly. It will be interesting to see how Mattel will react to this “new” substitution product in the future.

They continue to seek additional partnerships with comic books, movies and other platforms. I think the key issue with Mattel will be how great they will do in a web 2.0 environment in the future. Since their brand portfolio is very strong and diversified, it’s more a matter of switching distribution platforms.

Final Thoughts on Mattel

There is definitely a reason why Mattel was not only selected to be part of my The Best 2013 Dividend Stocks Book but are beating the S&P 500 so far this year. It’s because MAT is showing strong financial metrics. This is an easy business model to understand as kids will always play with toys and Mattel has proven its ability to go through recessions without hurting its balance sheet too much.

Considering its stability and recent focus on increasing its dividend payout, I think Mattel is an interesting stock for my portfolio and meets my Dividend Growth investment model criteria.

In our following posts, we will take a look at Disney (DIS) and Hasbro (HAS).

Disclaimer: I do not hold MAT shares at the moment of writing this article