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A list of 10 companies every dividend growth investor should consider

TOP 10 DIVIDEND GROWTH STOCKS

DIVIDEND STOCKS ROCK

Table of Contents

Legal Term of Use .................................................................................................. 4

Introduction ........................................................................................................... 5

3M Co (MMM) ....................................................................................................... 6

What Makes MMM a Good Business ................................................................. 6

Dividend Growth Perspective ............................................................................. 7

Stock Valuation .................................................................................................. 8

Walt Disney (DIS) ................................................................................................. 10

What Makes DIS a Good Business .................................................................... 10

Dividend Growth Perspective ........................................................................... 11

Stock Valuation ................................................................................................ 12

Genuine Parts (GPC) ............................................................................................ 14

What Makes GPC a Good Business................................................................... 14


Stock Valuation ................................................................................................ 16

Johnson & Johnson (JNJ) ...................................................................................... 18

What Makes JNJ a Good Business .................................................................... 18


Stock Valuation ................................................................................................ 20

BlackRock (BLK) .................................................................................................... 21

What Makes BLK a Good Business ................................................................... 21


Stock Valuation ................................................................................................ 23

Apple (AAPL) ........................................................................................................ 24



What Makes AAPL a Good Business ................................................................. 24


Stock Valuation ................................................................................................ 26

Lockheed Martin(LMT) ......................................................................................... 27

What Makes LMT a Good Business .................................................................. 27


Stock Valuation ................................................................................................ 28

Chevron(CVX) ....................................................................................................... 30

What Makes CVX a Good Business ................................................................... 30


Stock Valuation ................................................................................................ 31

Hasbro (HAS) ........................................................................................................ 33

What Makes HAS a Good Business ................................................................... 33


Stock Valuation ................................................................................................ 35

Wells Fargo(WFC) ................................................................................................ 36

What Makes WFC a Good Business .................................................................. 36


Stock Valuation ................................................................................................ 38

What’s Your Next Step ......................................................................................... 39



Legal Term of Use

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Introduction

Hello!

My name is Mike McNeil and I’m the author of

The Dividend Guy Blog along with the owner

and portfolio manager over at Dividend Stocks

Rock. I earned my bachelor degree in finance-

marketing, own a CFP title along with an MBA

in financial services. Besides being a passionate

investor, I’m also happily married with three beautiful children. I started my

online venture to educate people about investing and to be able to spend more

time with my family.

I used to struggle with the same issues millions of small investors deal with on a

daily basis. Which stocks to buy? When to sell them? How to find the time to

manage my portfolio? How to diversify? I wasn’t into dividend investing until I

looked in depth at my portfolio returns and realized I was having difficulty

keeping up with the market.

The root of the problem was a very poorly built portfolio that lacked structure and

the components required to build a sturdy base. I made good money from the

stock market but I was taking unnecessary risk to achieve my investing goals.

From that point on, I was determined to create a portfolio strategy that would

allow me to benefit from dividend growth stocks as a solid foundation. Since

then, I manage my portfolio with a stress free method that enables me to cash

out dividend payments even when the market goes sour.

The purpose of this guide is to create a list of 10 very strong dividend growth

stocks that I can buy and sleep on. I didn’t want to make an exhaustive list as

there are several great companies to buy. I didn’t want to make a classic list

either, this is why I tried to avoid classics such as Coca-Cola (KO) in this list… but I

couldn’t help including Johnson & Johnson (JNJ) hahaha!



3M Co (MMM)

What Makes MMM a Good Business

The strongest reason why you should add MMM to your portfolio is related to its

incredible ability to generate cash flow on a constant basis. Most 3M products are

consumable and generate repeat purchases. MMM makes sure to keep its

competitors behind it by spending over 2 billion in R&D annually while using

another 2 billion for acquisitions each year. However, 3M Co doesn’t forget about

its shareholders either. MMM has a strong history of dividend growth and stock

repurchases. The business evolves in 5 different segments:

Industrial Business (34%): This is the largest segment in terms of sales. The

division provides adhesives, abrasives, filtration systems, fasteners and specialty

materials to a variety of industries.

Safety and Graphics (18%): This business offers films, reflective materials,

projection systems, and the like. I bet you didn't know much about this part of 3M

Co, right?



Electronics and Energy (17%): This is 3M’s biggest business operation in Asia with

two-thirds of its revenue coming from this region. Electronics and Energy provides

products for businesses including films for LCD screens and splicing products for

signal cables.

Healthcare (17%): The Healthcare business focuses on products offered to more

developed countries such as the US and Europe. It makes products in the areas of

wound care, oral care, drug delivery systems, etc.

Consumer and Office (14%): This is probably the division we know best as

consumers; 3M offers a variety of home office products in developed countries.

Over half of these segment revenues come from the US.

Dividend Growth Perspective

The company has posted a double digit annual dividend growth rate over the past

5 years (10.89%). Since both revenues and earnings continue to increase even

considering currency headwinds, dividend investors should expect more dividend

increases in the upcoming years.

MMM was able to keep a payout ratio under 50% during the past 5 years leading

us to think that future dividend increase is sustainable even if the company faces

a global economic slowdown in the next couple of years.



Stock Valuation

In my opinion, MMM should be part of most conservative (or core) dividend

portfolios. While you shouldn’t expect incredible growth from this company,

dividend payment increases will always be there each year. In order to verify if it’s

the right time to buy MMM, we will look at the company’s 10 year PE history

along with a Dividend Discount Model calculation.

As you can see, the strong dividend increase in the past 5 years hasn’t been

ignored by the market. The P/E ratio has continuously increased over the past 3

years. However, the current market slump generated a buying opportunity as the

PE ratio dropped from 23 to under 19.

It seems the company hasn’t been highly valued as right now. Let’s use the

dividend discount model to see how much the company is worth according to its

dividend payment ability.



Source: Dividend Toolkit

I’ve used a dividend growth rate of 10% for the first 10 years and reduced it to

7.5% afterward. Then, I used a discount rate of 9% since the company shows

stellar numbers.

According to the DDM, the company trades at a discount over 20% or so with a

fair value of $179.

Considering MMM’s product portfolio and the fact the company is making the

bulk of its sales from consumable products in a business-to-business model,

MMM seems fairly attractive at the current price. This is a “long-term-dividend-

growth” stock for patient investors.

http://dividendmonk.com/dividend-book/

http://dividendmonk.com/wp-content/uploads/2015/06/MMM-intrinsic-value.jpg



Walt Disney (DIS)

What Makes DIS a Good Business

For a while, Disney’s revenue growth was saved by its media networks division

including the highly profitable ESPN. The company is currently facing more

headwinds in that sector as cable distributors are losing customers to internet &

streaming providers. Fortunately, the company has greatly improved its other

divisions over the past 5 years. The US economy rebound combined with a low

price for gasoline have improved the typical American budget for entertainment.

Disney also went from one success to another with its new Character movie film

Frozen. In December, we will witness another attempt by the beginning of a new

Star Wars trilogy while the entertainment company is already working on a sequel

to blockbuster Frozen.

Walt Disney is divided into five different segments:

Media Networks: ESPN is by far the most valuable asset in the division. While

ESPN’s operating income decreased slightly due to higher production costs and

lower advertising revenue, the Disney family compensated for the small shortfall.



Overall, this is a well-diversified segment split between kids and grown-up sports

fans.

Parks & Resorts: The Park division went through a very tough period when US

parks suffered from the previous recession while Euro Disney has been in a

continuous struggle for several years. While it's not getting any better in Europe,

US parks' profits soared by 20% in the last quarter, betting on a strong economy.

The new park in Shanghai should bring more to the table in the upcoming years.

Studio Entertainments: Disney's movie studios published a 33% surge in profits

led by three blockbusters: Frozen, Guardians of the Galaxy and Maleficent. They

now announced a sequel to their most recent success Frozen and the new Star

Wars Trilogy will make its on screen debut with its first movie in December.

Consumer Products: In my opinion, Disney's biggest strength lies in its business

model and the ability to integrate and cross-sell their ideas. Their most recent

success with Frozen is probably the best example. Disney hit the box office big

time with this movie and then went on to produce several derivative consumer

products. Strong with a licensing agreement with Hasbro (NASDAQ:HAS), Frozen

toys will sell for several years. Then, you can bet on new Frozen attractions to be

included in Disney Parks.

Interactive: The interactive segment is the virtual extension of Disney's products.

It creates and markets video games both online and for consoles. Many, if not all

of them, are derived from Disney characters and movies.


Income seeking investors will tell me that the DIS dividend yield is not high

enough to be considered. However, you should not only look at its yield, but also

at its growth rate. In the past 5 years, the company has increased its payments by

19.70% CAGR. In other words, the dividend payment doubled in 5 years.

The best part is the company’s payout ratio stands under 25% right now. I

personally can appreciate a low dividend yield if the payout ratio is at the same

level but the dividend growth perspective is through the roof.



Stock Valuation

Let’s take a look at the past 10 years’ PE ratio history to see how the stock market

values DIS:

While the company has been traded at lower levels in the past, the current

growth perspective explains the higher PE ratio. The recent drop in the stock price

represents a great entry point.



I also use a DDM model to consider DIS as a dividend paying machine:

Calculated Intrinsic Value OUTPUT 15-Cell Matrix

Discount Rate (Horizontal)

Margin of Safety 10.00% 11.00% 12.00%

20% Premium $72.34 $53.78 $42.67

10% Premium $66.31 $49.30 $39.12

Intrinsic Value $60.28 $44.82 $35.56

10% Discount $54.25 $40.34 $32.00

20% Discount $48.22 $35.85 $28.45


The fact that Disney doesn’t pay a high yield doesn’t give a good perspective to

value the company with a dividend discount model. I used a discount rate of 11%

as it is a volatile business that goes with the economy. Then, I considered a 10%

dividend growth rate for the first 10 years and 7% after. However, if I do the math

with this year’s dividend increase rate (15%) for the first 10 years and drop it to

9% afterward, I get the following chart:



Margin of Safety 10.00% 11.00% 12.00%

20% Premium $289.69 $142.34 $93.34

10% Premium $265.55 $130.48 $85.56

Intrinsic Value $241.41 $118.62 $77.78

10% Discount $217.27 $106.76 $70.00

20% Discount $193.13 $94.90 $62.22


As you can see, we are getting closer to a “real” value for the company. Overall,

Disney is probably the perfect combination of both strong dividend growth and

stock price growth at the same time.





Genuine Parts (GPC)

What Makes GPC a Good Business

Genuine Parts benefits from a marvelous position: it’s the biggest player in a

highly fragmented playground. This means the company benefits from the

leader’s position in terms of visibility and brand power while it can buy its

competitors one at a time. This is exactly how GPC’s business growth model is

built: the company is highly effective at growing by acquisition. Its integration

process is well streamlined and generates high scales of economy.

The automobile market is growing at the moment and there is nothing better for

an automotive parts seller. More cars on the road will eventually leads to more

cars to be repaired.

The automotive segment is the most important with 53% of overall sales. The

company offers over 427,000 different parts through its UAP NAPA stores. They

also market and distribute their replacement parts. GPC is also present in Asia

under GPC Asia Pacific.



The industrial segment is operated under the Motion Industries brand. They

distribute a variety of industrial parts such as bearings, mechanical and electrical

power transmission, hose and hydraulic components. They are present in all kinds

of industries from food and beverage to forest as well as healthcare industries.

The Office Products segment is headquartered in Atlanta and operates under the

name of S.P. Richards Company. The company is engaged in the wholesale

distribution of a broad line of office and other business related products through

a diverse customer base of resellers.

The Electrical / Electronic Materials Group is the smallest GPC business division

with only 4% of overall sales. It provides distribution services to OEM's, motor

repair shops, specialty wire and cable users, and a variety of industrial assembly

markets.


GPC’s dividend growth potential has been proven a long time ago. In fact, this

dividend aristocrat has successfully increased its payment for 52 consecutive

years.

This company is not an aristocrat by pure luck. It has controlled its dividend

growth in order to keep a payout ratio in the range of 50% most of the time. This

ensures enough room for more increases in the future.



Stock Valuation


values GPC:

As you can see, GPC is trading at a relatively high PE ratio compared to the

market’s evaluation over the past 10 years. However, the recent drop in the

market makes it interesting.



The DDM calculations give the following result:



Margin of Safety 8.00% 9.00% 10.00%

20% Premium $113.29 $84.70 $67.56

10% Premium $103.85 $77.64 $61.93

Intrinsic Value $94.41 $70.59 $56.30

10% Discount $84.97 $63.53 $50.67

20% Discount $75.53 $56.47 $45.04


I’ve used a 6% dividend growth rate for the first 10 years and reduced it to 5%.

The reason why I’ve picked a higher rate at first is because the company is

currently showing strong numbers and I believe it could give its dividend

payments a push.




Johnson & Johnson (JNJ)

What Makes JNJ a Good Business

Before we delve into the details, let's review some of the major JNJ milestones:

Dividend aristocrat with 52 consecutive years with a dividend increase;

31 consecutive years with adjusted earnings increases;

AAA credit rating

24 strong brands where 70% of them are #1 or #2 in sales in their market

We are talking here about a world class company. Their operations are divided

into 3 segments: Consumer includes baby care, skin care, oral care, wound care,

women's health and over the counter pharmaceutical products. The consumer

segment did well last quarter showing 3.4% growth without the currency

exchange factor. The only sub-segment that was hit was the Wound/Care

department as Benecol's rights were sold to a UK interest.

Pharmaceuticals include products for infection prevention, antipsychotics,

contraceptives, dermatology, gastrointestinal, hematology, immunology,

infectious diseases, neurology, oncology, pain management, thrombosis and



vaccines. The impact of slower sales expected for hepatitis C products due to

more competition was not enough to slow down the entire division. In fact, the

pharmaceutical sales show a strong growth of 10.2% or 3% once converted into

US dollars.

Medical Devices & Diagnostics includes all kinds of hospital equipment ranging

from diabetes care to spinal care. Unfortunately, stellar results from the pharma

are shadowed by disappointing results in Medical Devices with a sale decrease of

4.6% currency neutral. High competition and the sale of diagnostics products are

the reason of these results.

We rarely expect such important companies to show massive EPS growth as they

sell products everybody knows and has used for ages. These types of companies

are not in the habit of creating a boom. But JNJ has since 2012.


The company is a respected Dividend Aristocrats that has never let its

shareholders down for the past 52 years. JNJ has always been reasonable with its

dividend increases and this is why the payout ratio is still under 50% today.

JNJ has maintained an annualized dividend growth rate over 7% for the past 5

years meaning it has the ability to double its payment every 10 years. The

company show a steady revenue and earnings uptrend that will ensure the

dividend increase sustainability for many years from now.



Stock Valuation


values JNJ:

As you can see, the earnings multiple is reducing since 2012 until it has reached

by its previous level post 2008.

I use a DDM with a 7.5% dividend growth rate (matching the past 5 years) for the

first 10 years and reduce it to 6% afterwards:




20% Premium $217.24 $144.13 $107.60

10% Premium $199.14 $132.11 $98.63

Intrinsic Value $181.04 $120.10 $89.67

10% Discount $162.93 $108.09 $80.70

20% Discount $144.83 $96.08 $71.73


The company is currently trading at close to a 20% discount.




BlackRock (BLK)

What Makes BLK a Good Business

It is THE asset manager in the U.S. with the largest market share (AUM) with its

iShares division. With over $1 trillion invested in its ETFs, BLK shows more than

double the AUM of the second-place State Street Corp. (NYSE:STT). Considering

investors' ever growing appetite for ETF investments; this is definitely an

interesting economic moat to develop.

But BLK is more than the largest ETF provider; it is also the largest investment-

only defined contribution plan provider. Their business covers all investments

types from fixed income to equities and as specific as alternative investment

products. In other words, as long as investors keep investing, no matter if they are

looking for equities or a safe place to protect their gain, BlackRock is the major

player they will be looking for.

Their third segment, retail, benefits from a very effective distribution system as

they essentially sell their ETFs and mutual funds. BLK focuses on product

innovation to make sure their retail business grows over time.



The business now shows total assets under management of $4.65 trillion, up 7.6%

from last year. Even better, this is not only coming from the current bullish

market as AUM net increase for the last quarter only was standing at 105 billion.

The company shows a small debt of 4.9 billion compared to shareholders equity

standing at 27.4 billion.


BlackRock’s business model is the perfect definition of a cash generator: the more

money it manages, the more it generates. The best part is BLK makes fees on its

assets under management, regardless if they perform well or not. Even better:

BLK is the largest ETF manufacturer and this kind of product is not made to beat

the market but simply replicate it. In other words; the product can’t go wrong if

well built.

All three metrics (revenue, earnings and dividend growth) are aligned perfectly

and BLK will continue to raise its dividend for several years to come.



Stock Valuation


values BLK:

As you can see, the company is now trading at a relatively low PE ratio. This is the

first indication that the stock could be a deal right now.

BLK shows an incredible dividend growth rate of 19% over the past 5 years. In

order to use the DDM, I used an 10% CAGR for the first 10 years and dropped it to

8% for the years after:



Margin of Safety 10.00% 11.00% 12.00%

20% Premium $669.70 $443.70 $330.84

10% Premium $613.89 $406.73 $303.27

Intrinsic Value $558.08 $369.75 $275.70

10% Discount $502.27 $332.78 $248.13

20% Discount $446.46 $295.80 $220.56


BlackRock continues to show as a great buying opportunity.




Apple (AAPL)

What Makes AAPL a Good Business

While it may seem like that everything has been said about Apple, it is not the

case from a dividend growth investing perspective. This is why today, I’ll not only

take a look at the fast growing and innovative company that Apple is but more

about the future cash distribution machine it will become over the next 10 years.

The strongest asset Apple has is definitely its brand. Apple’s brand is known

across the world and for a good reason; all of their products are well designed,

well thought out and, most importantly, they interact perfectly in the most

beautiful product ecosystem ever created. In this ecosystem, we find the

following products: iPhone, iPad, iPod, Mac, iTunes & App Stores, iCloud, Apple

Pay, Apple Watch & Apple TV and Operating System Software. As you can see,

Apple wouldn’t be the biggest company by market capitalization if it didn’t sell

iPhones:




Apple is at the beginning of its dividend growth history. While it is very hard to

predict its future growth rate as the company is still reluctant to share its bank

account with shareholders, we know the best is yet to come.

The payout ratio is very low and the company’s ability to generate higher income

quarter after quarter is phenomenal. At best, the company will continue to post

astronomical numbers and both dividend and stock values will rise and at worst,

AAPL will become another Microsoft (MSFT) increasing its payment year after

year as steady as a clock.



Stock Valuation


values AAPL:

In order to have a better idea of its valuation, I’ll use the Dividend Discount

Model. I use the table found in my Dividend Toolkit to determine the value based

on the dividend paid by Apple. I use a discount rate of 9% since it will become a

very stable business in the future and there is lots of cash flow generated by its

business model. I expect the dividend to grow by 10% over the first 10 years and

then it should reduce its pace to 7%. This gives me a fair value of $127.90.





Lockheed Martin(LMT)

What Makes LMT a Good Business

Lockheed Martin (LMT) is the world’s largest defense contractor earning 61% of

its sales from the US Department of Defense, 21% from other US government

agencies and 18% from international clients. Heavy regulation, years of symbiosis

with the US Defense department and their know-how are three key elements

protecting most of LMT’s business. Let’s just say you can’t start building military

aircraft and missiles in your basement to compete with this defense behemoth.

The company recently designed the most advanced fighter aircraft (F-35), made

important advances in light tactical vehicles and continues its work in space

exploration. These are costly industries where not many competitors can

compete.




While Lockheed Martin saw its revenue decline in 2014 and the spectre of

Government military budget cuts is always there year after year, the company

manages to become more profitable year after year.

The company continues to reward its shareholders with strong growth in dividend

payments. The past 5 years show an 18% annualized dividend growth. I don’t

think the company will keep this rate for long, but still, LMT is praised for

increasing its payments significantly.

Stock Valuation


values LMT:

In order to have a better understanding of the company’s value, I used the

dividend discount model calculation spreadsheet with two stages. I used a 10%

dividend increase for the next 10 years and dropped it down to 5% afterward. I

think the company will continue to hike the dividend as high as it can until

revenues come back up. They have a strong cash flow machine in hand and can



play this game for a few more years. Since the business is relatively stable and the

worst may have already happened to LMT, I use a 10% discount rate.


The stock is currently trading near $210 and my fair value calculation stands at

$170. In other words; the stock is trading at a 20% premium.

A premium paid for strong dividend growth in the past years, a strong economic

moat where competitors won’t play very long against LMT and a premium paid

for a dividend stocks showing a yield of 3%.


http://www.thedividendguyblog.com/wp-content/themes/leia-en/imagenes/2015/05/LMT-Intrinsic-Value.jpg



Chevron(CVX)

What Makes CVX a Good Business

The investment thesis in this case is quite simple; buy CVX for the high dividend

yield and the possibility of seeing the stock head back over $100 once oil prices

reach better levels. Many analysts expect the barrel to climb back around $60 in a

near future. This should help the business show better numbers and get back over

the $100 price level.

The company has always rewarded its shareholders with juicy dividend increases.

This part of the deal will take a pause (I still think CVX will increase its dividend

but barely). However, a 5% yield should be enough to keep you waiting for a

while.


I have currently a mixed feelings about Chevron’s dividend growth perspectives.

The company has always placed its distribution at the center of its cash flow

management focus. Even during these rough days, CVX has made sure to talk

about sustainability of its dividend payment. For the next two years, the company



has planned its cash flow and the dividend will not be reduced. However, it is very

possible that if oil prices stay this low, the distribution won’t be increased either.

Stock Valuation


values CVX:

The 10 year PE history tells me how the market has valued CVX through time. We

can see the last time it was valued “as high” was when profits were hurt due to

low oil prices back in 2008-2009. Unfortunately, as long as the production of oil

will remain at this level worldwide, CVX will suffer and nothing can be done.

Therefore, the PE history doesn’t tell me much.

The second model will give me a better idea of CVX's value as a dividend paying

machine. I’ll use a 2 level dividend discount model with a first dividend growth

rate of 3% for ten years and then 8% after. I expect the company to keep

increasing its dividend ever so slightly and will get back to its 8% growth rate once

the storm is over. Since the situation is quite hectic right now, I will use a discount

rate of 12% as this investment is riskier than usual.





Margin of Safety 11.00% 12.00% 13.00%

20% Premium $122.34 $93.35 $75.88

10% Premium $112.15 $85.57 $69.55

Intrinsic Value $101.95 $77.79 $63.23

10% Discount $91.76 $70.01 $56.91

20% Discount $81.56 $62.23 $50.59


The company still looks overvalued at the moment considering a very high

discount rate. However, if I had chosen a discount rate at 11%, the price would be

trading at a 20% discount. This demonstrates very well the risk premium required

in this investment. If oil prices recover, you will be making 20%+ return in no time.

However, if it remains at these very low levels, chances are the walk down the

plank is not done yet.




Hasbro (HAS)

What Makes HAS a Good Business

Hasbro (NASDAQ:HAS) has divided their operations into four different segments

that all share the same goal: offering the best family entertainment possible,

which Hasbro calls the "Best Play Experience." Their four segments are listed as

follows:

Toy & Game Product Innovation

Digital Media

Immersive Entertainment Experiences

Lifestyle Licensing

But what really makes Hasbro interesting for me lies in its unique ability to renew

and manage its franchise brands. In 2014, its franchise brands sales grew by 31%.

While Hasbro has created its own blockbusters such as Monopoly (and I must

mention that I'm a huge fan of RISK), most of their creations are part of the "old

ways of playing" as many board games don't catch today's kids' attention like they



used too. Nonetheless, HAS continuously finds a way to make their toys attractive

and gather more kids around.

On the other hand, their ability to generate numerous toys from partner brands

such as Marvel (Avengers) or most recently Frozen from Disney is spectacular.

Now that we have a new Star Wars trilogy coming and Hasbro will be part of the

adventure, we can expect additional growth over the years to come.


Hasbro has increased its dividend payment by 16% annually over the past 5 years.

Its recent success with licensing toys will definitely push revenues and earnings to

another level. Therefore, we can expect the company to keep increasing its

dividend.

However, thinking the company will continue at this pace is dreaming in

technicolor. Since the payout ratio is relatively low, we can see the company

reducing its growth rate into the low double digits (around 10%). Still, this is a

very good growth rate.



Stock Valuation


values HAS:

Due to its recent success, Hasbro has benefitted from a better valuation over the

past two years. Using the DDM will tell us more about its real value. I used a 10%

growth rate for the first 10 years and reduced it to 7.5% afterward:



Margin of Safety 10.00% 11.00% 12.00%

20% Premium $117.02 $82.96 $64.07

10% Premium $107.27 $76.05 $58.73

Intrinsic Value $97.52 $69.14 $53.39

10% Discount $87.77 $62.22 $48.05

20% Discount $78.02 $55.31 $42.72


The fact I’m using a discount rate of 11% makes this stock slightly overvalued

right now. However, I think you can benefit from a good margin of safety.




Wells Fargo(WFC)

What Makes WFC a Good Business

Wells Fargo & Co is a diversified financial services company. It provides retail,

corporate and commercial banking services through banking stores and offices,

the internet and other distribution channels to individuals, businesses and

institutions.

Wells Fargo had put customer service amongst its top business priorities a while

ago. It is known for its sustainable & responsible business approach and was

recently voted #1 best bank in customer service for the past two years. According

to a study made by the AMA (American Marketing Association), top customer

service businesses top the market all the time (full research here).

But the bank is not only friendly to its customers, it’s also everywhere across the

United States and has a very strong sales force:



Source: Wells Fargo Investors Relation Website

They are now #1 for mortgages, middle market commercial loans, small business

loans and auto financing. On the flip side of things, they are “only” #3 for

brokerage services and #4 for wealth management (based on AUM).


Now that 2008 is well behind WFC, you can expect to see more dividend increases

in the upcoming years. Since Americans’ balance sheets have been cleaned, WFC

will benefit from a strong and solid revenue growth.

Wells Fargo has lots of deposits that will earn more money upon interest rate

incresses. In fact, the company owns over a trillion in short term deposits. As soon

as interest rates rise, the company will see its revenues follow the same trend.

https://www08.wellsfargomedia.com/downloads/pdf/invest_relations/presents/goldman_120914.pdf



Stock Valuation


values WFC:

The company took a big hit back in 2008 but it is now back to its historic

valuation. While using the DDM, I considered the bank’s low payout ratio to

justify a growth rate of 10% for the first 10 years and scaled it back to a more

reasonable level of 6% afterwards.




20% Premium $136.35 $89.80 $66.58

10% Premium $124.98 $82.31 $61.03

Intrinsic Value $113.62 $74.83 $55.48

10% Discount $102.26 $67.35 $49.93

20% Discount $90.90 $59.86 $44.38


There are still lots of wounds to be healed before investors can trust banks again

and this is reflected in the current WFC value. This is why the company is

currently a bargain on the market.




What’s Your Next Step

This list is only the beginning of a long journey toward dividend growth investing.

In the end, the true power of dividend investing is materialized through time. The

longer you keep your dividend growth stocks, the higher the return you will earn

from your investments. And this is how you will succeed in building a solid

retirement portfolio.

In order to help you out while building this portfolio, I’ve created a dividend

growth investing platform called Dividend Stocks Rock. This is an online

membership site that gives you access to all the tools and techniques you can

personally use to build a rock solid portfolio. This is not about stock

recommendations or some kind of guru principles. It’s about sound investing

decisions made based on solid stock research. And 95% of the work is done for

you.

Dividend Stocks Rock will build your knowledge, skills, and investment capability

from the ground up. You’ll master the techniques you need to understand what

drives portfolio growth and individual stock growth to build the portfolio you

http://www.dividendstocksrock.com/buildyourownportfolio/



want. Most importantly, it will give you the data at your fingertips to allow you to

put the process into action from day 1.

Dividend Stocks Rock is more than a premium investing newsletter:

We manage real-life dividend portfolios and send trade alerts when we

buy or sell a stock.

We provide you with pre-screened stock lists with various metrics.

We create 1 pager stock analyses to save you time from reading

numerous pages of financial information.

We help you in your valuation process with an excel spreadsheet

calculator using a two stage dividend discount model.

We write a bi-monthly premium investing newsletter to keep you

updated on the stock market.

We have priced this product for the individual investor! Personally, I am sick and

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I sincerely hope this guide will help you build a stronger retirement portfolio and

enable you to reach out your goals stress free.

Good luck with your investments,

Mike McNeil - Founder of Dividend Stocks Rock



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