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Great dividend stocks offering a good entry point

Lorillard (LO)

Lorillard is another great stock in my portfolio and my watch list. A great performer paying nice dividend. Its dividend history isn’t that shiny as KMP, as it’s been increasing the dividend only for four consecutive years, but it has been a great performer.

The stock was beaten down many times during its history since 2008. It is exposed to a significant regulation risk. However, the FDA has been talking about regulating or banning menthol in cigarettes for years and nothing happened. That doesn’t mean that nothing will ever happen. One day the FDA may step in and ban menthol which would be a serious revenue issue for Lorillard. I consider this stock a bit risky because of that, but still I am willing to invest in it, although my allocation would be smaller than with other stocks.

LO

On the chart above you can see the stock re-testing its long term support (the yellow rising line). The stock shortly broke below this support in March this year, but recovered easily and continued nice run up. Since 2008 this stock traded along this support with a few tests. At this support it may be a great opportunity for a small addition of this stock to the portfolio.

Stock details

Consecutive Dividend Increase: 4 years
Dividend yield today: 4.90%
Dividend 5yr Growth: 23.33%
Dividend paid since: 2008

Morningstar estimates a fair value for this stock at $43 a share. With current price the stock is trading at that value. My own calculated fair value is at $45 a share and estimated growth rate 9.20%.

McDonald (MCD)

This is a classic stock sparking a lot of controversy. May investors out there believe, this company is done, finished, and on a permanent decline, others believe that McDonald will survive easily as it has done many times in history. It’s revenue is declining and they may be struggling these days coming up with new menus attracting more customers.

But, take a look at a different aspect. Whenever a new market around the world opened, it was always MCD who “franchised in” that market as the first fast food chain. Many years later you could see MCD competitors entering the market and some hasn’t get there yet. What am I talking about? I speak about emerging markets. Post-communist countries, for example. It was McDonald which opened their first restaurants in cities such as Berlin (in former East Germany), Prague, Warsaw, Bratislava, or Budapest. Now it is McDonald opening more fast foods in Russia and China. Where are their competitors? Where is Burger King? You won’t find any of their restaurant in Prague for example. And MCD in those countries rocks and grow very fast. It is only here in the US where we are spoiled already, but not out there.

Today’s MCD is more about real estate rather than fast food. Just walk around the world and check in what places MCD has their restaurants. They are in the best locations ever. And in most cases, they own those spots. They do not rent.

The moat of McDonald is so large, that I believe this company will survive. It pays nice dividend, its yield is at 3.10% and it has been increasing it for 36 consecutive years.

MCD

The chart above indicates that MCD retreated from its spectacular highs and touched its long term uptrend support line (green line). It dropped below $100 a share price and in my opinion at the current price of $96.45 a share it is a buy.

Morningstar values this stock at $105 a share, so it trades at a nice discount. My own calculation values this stock even higher, at 133 a share, but I would stick with more conservative Mornigstar valuation.

Stock details

Consecutive Dividend Increase: 36 years
Dividend yield today: 3.10%
Dividend 5yr Growth: 6.73%
Dividend paid since: 1976

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11 responses to “Great dividend stocks offering a good entry point”

  1. Integrator says:

    I have a small holding in Lorilard, the potential methanol ban has got reevaluating this position. I’m looking to top up my McDonalds holding given where it is trading right now. I may do a swap out of Lorilard and into McDonalds.

    • Martin says:

      For that same reason I am not increasing my stack in LO although it is very appealing to buy. But I will keep the existing position and watch it closely.

  2. Great pick on Lorillard. It’s kind of like a sleeper I forgot with Altria standing in the way. Do you happen to know what assets they have or could utilize in the event of a menthol ban? Many have made the argument that the tobacco companies are actually well-equipped for all out tobacco bans. Some are even going so far as to suggest, patents they have on the production and distribution of marijuana (if legal) will keep them afloat. Do you know of Lorillard has any of this?

    • Martin says:

      Unfortunately LO is pretty vulnerable to the regulation. 90% of its revenue comes from menthol cigarettes. They sold their international rights to their brand in 1977 so they won’t be able to generate revenue overseas and the only I know right now is a production of blue e-cigarettes, for which they are gaining nice market share. However the revenue from e-cig is miniscule. Marijuana ma be a good replacement, but I do not know if LO will be participating. However, if FDA bans menthol, it will be the end of LO, so if investors are not willing to take this risk, they shouldn’t invest in LO. I do not think FDA will take this step although they have been talking about it for years. First they claimed that they need to take scientific approach to study the impact of menthol cigarettes. None of the studies revealed that menthol cigarettes are worse than any other cigarettes on the market. All what happened so far was a recommendation from Tobacco Products Scientific Advisory Committee that removal of menthol cigarettes would benefit to the public health. FDA then must weight the black market and almost $10 billion of lost government revenue if they ban it. So far this step from FDA is very unlikely. But everything can happen.

  3. WStreet Stocks Weekend Reads | WStreet Stocks says:

    […] Great dividend stocks offering a good entry point by Martin […]

  4. Sfi says:

    Another correction to the upside. Most financial sites don’t list the correct dividend for Realty Income. It’s 2.179/year which puts the yield at 5.2%.

    • Martin says:

      That is correct. My own spreadsheet list the last dividend times 12 to get the yield, but sometimes I use my broker’s listing. I asked them why they are showing a different rate and yield and they responded that they calculate last 12 dividends paid rather than the last dividend times 12. That’s why you may see different yields. However for consistency matter I will list last dividend times 12 next time. I corrected the yield on this one.

  5. Jake @ Common Cents Wealth says:

    Thanks for the stock tips. I’ll have to add these to my watch list. It’s been a bit difficult to find value lately, but it looks like these may be good buys.

  6. Rita P @ Digital Spikes says:

    Thanks for sharing detailed insights about KMP. I will check it out

  7. I like KMP and will probably pick up a few shares soon. O looks good to me too. thanks for the suggestions.

  8. MG says:

    Hello!

    Enjoy reading your entertaining posts. Just wanted to point out that I think you have an error with respect to the MCD dividend changing from $0.52 to $0.58. Last time I checked it is $0.77 per share!

    Cheers,

    MG

    • Martin says:

      Hey, thanks for the catch. I checked it out and the rate was for KMP and MCD. I mistakenly looked at the wrong line. MCD doesn’t seem to have raised the dividend recently at all. I will correct the post. And yes, it is 0.77 a share / quarter.

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