The Wealthy Owl's Dividend Growth Portfolio
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Stable dividend grower to capitalize on connectivity and data thematic
Bought 20 shares on 2/25/2022 at $233.66
Two of the most prominent drivers of our ever increasing digital world are connectivity and data. More and more devices and things are getting connected, and the amount of data flowing thru those devices and things is growing exponentially. Average data usage per device is forecasted to grow at a compound annual growth rate (CAGR) of 24% thru 2026.
If you want a stable way of playing this fast growing trend, look to the physical real estate and infrastructure enabling our digital world.
American Tower Corporation, one of the largest global Real Estate Investment Trusts (REITs), is a leading independent owner, operator and developer of wireless and broadcast communications real estate. They make wireless communication possible in the US and around the world.
AMT is a very stable dividend grower that you can buy and forget. Lots of promising growth drivers as connectivity and data continue to proliferate, along with increased adoption of edge computing.
Read AMT deep dive from the Wealthy Owl
Taiwan Semiconductor Corp.
Invest in the most important product of our time
Bought 40 shares on 2/25/2022 at $112.33
Taiwan Semiconductor Manufacturing Co. (TSMC) provides investors with a rare combination of growth and dividend income that itself should grow over the years. There are lots of tailwinds as the world's insatiable appetite for chips will only grow as our world becomes more and more digital. There is no company better positioned to ride this wave than TSMC, their process power, wide moat and deep relationships with the world's most important technology companies solidifies their number one position in this market oligopoly. TSMC has paid a dividend each year from its first distribution in 2004. Their annual dividend per share has increased for six consecutive years, growing at an annualized rate of 13% over the last five.
Read TSMC deep dive from the Wealthy Owl
Houlihan Lokey Inc.
Generous investment bank has raised its dividend consistently since going public
Bought 50 shares on 2/25/2022 at $102.96
One of the oldest independent investment banks in the market, Houlihan Lokey (HLI) has a much shorter history as a public company. While the company only went public in 2015, all its key numbers have grown. They've grown revenues 17% per year and net income by 28% for the last five years. It’s amazing performance since going public seems to be a continuation of its steady growth over its 50-year existence. The company has demonstrated its resilience over the years, where some of their competitors were sunk due to several economic crises over this period, not HLI. It has flourished over the years as a result of its quality, long-tenured management team, integrity, and industry leading expertise. HLI has been recognized as the Top U.S. Mergers & Acquisitions Advisor and Top Global Restructuring Advisor, among other awards over the years. They beat out competitors such as Goldman Sachs, JP Morgan and Morgan Stanley for these accolades. Their stock has also outperformed, beating the investment bank industry annualized return over five years by 13% pts. This relatively unknown investment bank has delivered big time for its investors since it went public seven years ago. Don’t let their shorter public history dissuade you from what is a very well managed and long tenured business that pays an aggressively growing dividend.
Read HLI deep dive from the Wealthy Owl
Major rail company has a 123 year track record of paying a dividend
Bought 20 shares on 2/25/2022 at $246.41
A 150+ year old railway company, Union Pacific has a long history of connecting the United States (US) economy. As the largest railway company in the US, Union Pacific hauls coal, industrial products, intermodal containers, agriculture goods, chemicals, and auto goods across its over 32,000 miles of track connecting the US to Canada and Mexico. Union Pacific has paid a dividend for 123 consecutive years. Its impressive profitability leaves Union Pacific in a good position to continue to grow its dividend.
Premium business that pays dividend and offers growth upside
Bought 20 shares on 2/25/2022 at $316.65
The world’s largest home improvement retailer, Home Depot enjoys a wide moat business as a result of its scale and strong brand. They are undergoing a major digital transformation, adopting an omni-channel model with more sales moving online. If Home Depot can execute on more advanced digital opportunities they have yet to tackle, I see a long runway ahead for investors to capture the increased shareholder value these opportunities are sure to create. With the premium you are paying for Home Depot you get an outstanding business that is rapidly growing its dividend and that offers attractive growth upside.
Read about Home Depot's digital transformation from the Wealthy Owl
Faced with top drug falling off patent cliff, Abbvie readies its arsenal to find a replacement
Bought 30 shares on 2/25/2022 at $149.54
AbbVie is a biopharmaceutical company that originated as a spin-off from Abbot in 2013. The company focuses on both life-threatening diseases and chronic conditions such as cancer and rheumatoid arthritis. The company's top drug, Humira, represents half of the company's profits and its patent is set to expire.
The company has several emerging drugs that could replace Humira as its top drug, its next-generation immunology drugs, potential cancer blockbuster drug Imbruvica and several other late-stage cancer drugs that are showing promise. However, it is still too early in the game for these upcoming drugs. There is risk that their potential will not fully materialize, leaving the company facing the prospect that the drug responsible for more than 50% of their profits will be falling off its patent cliff soon with no adequate replacement. They are not sitting on their hands, and with its generous dividend yield and clear commitment to increasing its dividend, AbbVie offers some stock price upside and growing dividend income.
Proven performer that prioritizes shareholder return
Bought 35 shares on 2/25/2022 at $128.78
Blackstone is the world’s largest alternative asset management, known as the "go-to firm" for institutional and high-net-worth investors looking for exposure to unconventional asset classes. The firm uses its investing process, scale and the ability to easily move pools of funds from one asset class to another opportunistically.
Blackstone has built an amazing business over the last 36 years, innovating from its start up days as purely a private equity investment firm to new asset specialties such as real estate, hedge funds, credit, secondary funds of funds, and multi-asset class strategies. The firm’s unique culture built by founder CEO and investing legend Stephen Schwarzman, scale and steady inflow of capital puts it in a unique position to deliver market beating returns for customers. Blackstone’s investment track record has built a nice virtuous cycle that reinforces its strengths, which should continue well into the future.
Stable defense contractor has a safe dividend
Bought 15 shares on 2/25/2022 at $409.49
Lockheed Martin is the largest defense contractor globally and operates in four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. Lockheed Martin’s revenue is closely pegged to America’s defense spending as close to 75% of its revenue comes from the U.S. government (based on 2020 financial results).
Lockheed Martin’s financial outlook is very stable given the long-term nature of defense contracts. For example, the F-35, which accounts for about 30% of the company’s revenue, will be sustained through 2070. This enviable position of decades long contracts provides a lot of financial stability which greatly reduces any risk to the sustainment and growth of its dividend payment. With a track record of 26 years of paying a dividend, Lockheed Martin’s dividend is very safe. Any risk to their ability to grow their dividend is related to U.S. Department of Defense spending. They are so dependent on the U.S. military industrial complex that if defense spending was curbed it would create very choppy waters for the company. For example, the fall of the Soviet Union led to sustained defense cuts until the U.S. government could find a new enemy. Sadly, for the prospect of world peace, with the Russian war and increased tension in U.S. and China relations military spending is likely to only increase over the next decade.
Toronto Dominion Bank
One of North America's top 10 largest banks operating in oligopolistic Canadian market
Bought 75 shares on 2/25/2022 at $82.43
TD is one of the two largest banks in the oligopolistic Canadian banking market and operates three business segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank's U.S. operations span from Maine to Florida, with a strong presence in the Northeast. TD realizes 55% of its revenue from Canada and 35% from the United States, with the rest coming from other countries.
The Canadian banking sector provides for more stable and conservative management as compared to their US counterparts, offering investors exposure to high yielding and reliable dividend payers. TD fits the profile and then some. Founded in 1855, TD has grown into one of North America’s top 10 largest banks by total assets and market capitalization. TD has raised its dividend for 16 straight years and has paid out a dividend to investors for 160+ years. TD has outperformed the Canadian banking industry overall (as of Dec 26, 2022, per Morningstar bank sector index) by 4% pts over the last five years.
Strong brand and extensive dealer network solidifies iconic status for world's largest heavy equipment manufacturer
Bought 30 shares on 2/25/2022 at $187.06
The iconic Caterpillar is the world’s largest heavy equipment manufacturers with over 15% market share as of 2020. Caterpillar is poised to benefit from the $1.2 trillion infrastructure bill recently passed by U.S. lawmakers for roads, bridges and other major infrastructure projects.
The company’s strategy focuses on operational excellence, expanded offerings and growing services thru digital-enabled solutions that help deepen relationships with customers.
While not as mature as other heavy equipment manufacturer pick John Deere, Caterpillar is building its digital muscle. More than 1 million of its assets are connected to its digital platform (out of 2 million assets in the field). This install base is the foundation for future services growth, which they project to double to $28B by 2026.
The strength of its brand and extensive dealer network has helped solidified Caterpillar as the market leader for heavy machinery equipment. Caterpillar revenue ebbs and flows with demand from the construction, mining, and energy markets, leading to volatile revenue and operating profits over the years. Its operational focus and emerging recurring service revenue growth should help smooth out the volatility of future results.
Free cash flow zealot dominating unsexy sub-sector of semiconductor industry
Bought 25 shares on 01/30/2023 at $173.49
Texas Instruments (TI) is a global semiconductor company that designs, manufactures, and sells analog and embedded processing chips mainly to industrial, automotive and personal electronics customers. With a 70+ year history of innovation, TI were pioneers in the transition of the electronics industry from vacuum tubes to transistors and now to integrated circuits.
Despite the ubiquitous digital chip stealing all the headlines because of their processing power and use in everything from fridges to phones to airplanes, analog chips are a growing opportunity. Given analog chips represent 77% of TI’s total revenue, this is a good thing. In addition to signal processing use cases, every electronic product requires analog chips to provide the power to run. Every time a new phone gets built or a new “thing” gets electrified so it can connect to the Internet, you better believe it contains analog chips.
TI has built their enviable market position thru vertical integration, ultra low cost 300 mm silicon wafter manufacturing, scale, direct to consumer (DTC) muscle (in 2019 one-third of TI business was DTC, in 2021 this rose to 70%), and diversification of products (TI has over 80,000 SKUs available for 100,000+ customers). TI, and its shareholders, enjoy the benefits of a very attractive market. The analog industry features low risk of inventory obsolescence due to long product lifecycles, lower capital requirements as the manufacturing equipment lasts for decades, high switching costs for customers who have designed chips into their devices, pricing power retained by suppliers, and lower R&D costs than digital chip manufacturers. The result is expanding gross margins that reached 67.5% in 2021 from 52% in 2013, and 12% annual growth of free cash flow per share from 2004-2021.
As the leader of the attractive analog chip industry and its religious focus on growing free cash flow for shareholders, Texas Instruments (TI) is a dependable dividend payer. TI appears to be in a great position to continue to deliver for shareholders, just like it has in the past. TI has an annualized total return of 13.5% for shareholders.
Read more about the Wealthy Owl's take on Texas Instruments
Qualcomm well positioned for the era of edge computing
Bought 30 shares on 2/25/2022 at $170.93
Leading mobile chip designer Qualcomm has prospered over the years because of its dominant position in the smartphone market. It also derives about 19% of its revenue from licensing its collection of mobile technology patents. Qualcomm has its IP in almost every smartphone sold in the world today.
Qualcomm is diversifying its revenue growth across an expanding TAM. Qualcomm forecasts its TAM growing to $700 billion over the next decade, up from its current $100 billion, due to the growth of edge computing. This is a world where devices, wearables, cars, VR headsets, industrial machines (aka IoT) and beyond process data at the edge so they can make intelligent decisions on their own without having to take slower and less secure roundtrips back to the central cloud. 5G is critical to connecting all of these ‘things’ to edge cloud.
5G is a massive growth driver for Qualcomm. Its Snapdragon tech has been optimized to realize this opportunity not only in its legacy handset business, but new areas such as IoT ($5B+, 67% YoY growth) and automotive (~$1B revenue in FY21, 51% YoY growth).
Qualcomm has a long track record of optimizing cash flows for investors. For investors willing to trade a little yield for some growth upside in the tech industry, Qualcomm is a buy.
Read more about The Wealthy Owl's take on Texas Instruments
Deere & Co.
The Apple of the agriculture business
Bought 15 shares on 03/01/2022 at $346.98
Founded in the mid-19th century, the original John Deere built the steel plow and transformed farming. Over 180 years later, the company bearing his name is now undergoing a digital transformation that is revolutionizing the same industry. Deere is the world’s leading manufacturer of agricultural equipment.
John Deere has built a platform business, much like Apple achieved with the iPhone, but for the agriculture business. They have an integrated offering of world class hardware and software, locking customers into the Deere ecosystem with a consistent user interface and new software advances such as AI, computer vision and autonomous. John Deere can also unlock the value of their customer’s farm related data by using machine learning and other analytical technologies to offer insights and custom guidance, such as recommendations for new fertilizer seed and chemical treatments. To create network effects around their platform, Deere has invited 3rd parties to build on its platform to better serve customers with agriculture related apps and services. To continue the Apple analogy, its like an Appstore for the agriculture industry.
In addition to their technology advantages Deere has other ways to differentiate in an oligopoly-based market, including being one of the world’s most valuable brands and its vast worldwide dealer network.
John Deere has close to a two centuries worth innovation track record. With a lower yield and inconsistent annual dividend raises, John Deere is closer to a growth stock than dividend grower. However, the combination of growth and a steady dividend make it attractive.
Product diversification helps protect Blackrock from broad market risk
Bought 1 shares on 03/01/2022 at $750.87
BlackRock is one of the world’s largest asset managers with $7.8 trillion in Assets Under Management (AUM). BlackRock generates half of its annual revenue from passive investing products like Exchange Traded Funds (ETF). BlackRock is the company behind the popular iShares brand of ETFs. BlackRock offers both passive and active investing products, in equities, fixed income, currency, and commodity, among others. This diversification helps protect BlackRock more from broad market risks, relative to its peers. Although it’s expected asset management firms face headwinds in terms of a likely stock market stagnation on the horizon (reducing assets under management fees), BlackRock is best positioned to weather any future storms. Blackrock has raised its dividend for 18 consecutive years, growing it 13% over the last 5 years.