Sure Dividend HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN

Transcription

1 Sure Dividend HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN December 2014 Edition By Ben Reynolds

2 Table of Contents Opening Thoughts... 3 The Top 10 List... 4 Review of December s Top 10 Stocks... 5 Wal-Mart (WMT)... 5 ExxonMobil (XOM)... 6 General Mills (GIS)... 7 PepsiCo (PEP)... 8 ConocoPhillips (COP)... 9 McDonald s (MCD) Kellogg (K) Coca-Cola (KO) Abbott Laboratories (ABT) Philip Morris International (PM) List of Stocks by Segment Performance Portfolio Building Guide... Error! Bookmark not defined. Examples... Error! Bookmark not defined. List of Past Recommendations... Error! Bookmark not defined. Ending Thoughts... 21

3 Page 3 Opening Thoughts The S&P 500 rose another 2.8% this month. The S&P 500 s P/E ratio is at 20.1, about 30% above its historical average P/E ratio of The overall market has remained above a P/E ratio of 15 since 1990, only briefly dipping below a P/E ratio of 15 in Stock market valuations have been elevated over the last 25 years due to several factors. The primary factor is falling interest rates over the last 25 years. When interest rates are low stock market returns are comparatively more attractive. This attracts cash flows into stocks, which push up valuation levels. Waiting to invest until the market returns to normal valuation levels would have been a poor strategy over the last 25 years. Investors would have missed decades of returns while fretting over the perfect entry point. I believe a more appropriate strategy is to look for high quality businesses that will grow their dividend payments regardless of the overall economy. Purchasing these businesses at fair prices (not necessarily deep discounts, although that is preferred) will likely result in favorable long-term results. Several past Sure Dividend picks did well this month. Target (TGT recommended in April 2014) was up over 20% on the month as the company beat analyst EPS estimates and stands to benefit from lower transportation costs from low oil prices. Wal-Mart (WMT recommended April 2014) stock increased 8.87% on the month. The company rose due to the its recent announcement of more investment into its digital and e-commerce division. In addition, Wal-Mart will also benefit from reduced transportation costs from low oil prices. Becton Dickinson (BDX recommended June 2014) was up 9.38% over the last month, the second month in row of strong performance. This month OPEC announced it would not be reducing oil production. There is currently an oversupply of oil, and there likely will be for some time. This has pushed down oil prices and hurt the share price of US oil corporations, including ExxonMobil and ConocoPhillips. On the other hand. lower oil prices are a tailwind for discount retailers because lower oil prices result in lower transportation costs which increases margins. In the shortrun, oil prices will likely remain low, but will eventually recover. Currently no past recommendations are up for sale based on The 8 Rules of Dividend Investing.

4 Page 4 The Top 10 List Ticker Name Yield Payout Growth Volatility WMT Wal-Mart Stores Inc. 2.28% 37.94% 8.17% 19.14% XOM ExxonMobil Corp. 2.94% 34.68% 6.15% 25.33% GIS General Mills 3.09% 60.07% 6.76% 17.02% PEP PepsiCo Inc. 2.68% 57.47% 10.74% 17.39% COP ConocoPhillips 4.30% 38.68% 6.00% 30.45% MCD McDonald's Corp. 3.53% 66.67% 6.91% 20.14% K Kellogg 2.95% 51.58% 5.25% 17.33% KO Coca-Cola Company 2.80% 58.84% 9.04% 18.71% ABT Abbott Laboratories 1.95% 40.99% 10.00% 19.84% PM Philip Morris 4.59% 74.63% 8.63% 24.05% Wal-Mart regains the top ranked spot this month from PepsiCo. Other long time Sure Dividend favorites ExxonMobil, PepsiCo, McDonald s, and Coca-Cola remain in the Top 10 this month. There are 2 new additions to the Top 10 this month: ConocoPhillips and Kellogg. ConocoPhillips stock price is down due to temporary oil supply glut, which has reduced oil prices. Kellogg is the global leader in breakfast cereal. The company s stock price is down due to weakness in its U.S. operations. Both companies current stock price weaknesses have resulted in higher yields and lower P/E ratios, making them timely purchases. Changes occur only when companies release new financial data, or when stock prices change or reduce dividend yields. The stability of the Top 10 list shows the ranking method is consistent, not based on rapid swings. An equally weighted portfolio of these 10 businesses has the following characteristics: Top 10 S&P500 Dividend Yield: 3.11% 1.81% Payout Ratio: 52.15% 38.29% Growth Rate: 7.77% 7.43% Volatility: 14.88% 20.34% PE Ratio: P/E is calculated as the current price divided by trailing-twelve month earnings ; lower is better - Dividend Yield is calculated as the current price divided by the most recent quarterly dividend x 4; higher is better - Payout ratio is the most recent quarterly dividend x 4 divided by trailing-twelve month earnings from Value Line; lower is better - Growth Rate is the lower of 10 year revenue per share or dividend per share compound growth; higher is better - Volatility is the 10 year standard deviation of dividend and split adjusted price series; lower is better

5 Page 5 Review of December s Top 10 Stocks Wal-Mart (WMT) Overview & Current Events Wal-Mart is the largest retailer in the world, with over $480 billion in annual sales and the largest employer in the world with over 2.2 million employees. The company s 6 heirs are worth a collective $140+ billion, one of the largest fortunes ever amassed. Wal-Mart grew EPS just 1% in its most recent quarterly report (11/13/14). The company announced it will increase its digital and e-commerce investments over the next 2 to 3 years. The company expects e-commerce revenue growth to average 30% to 40% per year over the next 3 years. Wal-Mart currently generates about $12.5 billion in e-commerce sales globally. Next Dividend Record Date: Early March, 2015 Next Earnings Release: February 19 th, 2015 Competitive Advantage & Recession Performance Wal-Mart s competitive advantage comes from its massive scale and operating efficiency. The company pressures suppliers to lower their prices and then passes the savings on to consumers which results in an even greater size advantage. Wal-Mart is attempting to leverage its strong distribution network to provide online shoppers with convenient in-store pick up options and fast delivery. The company s low prices are appealing to consumers during recessions. The Great Recession of 2007 to 2009 did not affect Wal-Mart s operations. The company grew revenue, earnings, and dividends each year through the recession. Wal-Mart is among the most recession-proof businesses around. Growth Prospects, Valuation, & Catalyst Wal-Mart s future growth will come from international markets, smaller store-layouts which fill in the gaps geographically of larger super centers, and e-commerce. The smaller stores are 10% of the size of a supercenter and combine a pharmacy and gas station with, dollar store pricing. Wal-Mart is focusing heavily on digital and e-commerce growth. The company has over 2,000 employees in Silicon Valley and is ramping up digital and e-commerce investment. The company is currently trading at a P/E ratio of about 16.75, well below the market s P/E ratio of about 20. Wal-Mart is the cheapest publicly traded discount retailer in the US, well below the P/E ratio of its competitors Costco (P/E of 30.9), Target (P/E of 18.6) and Dollar General (P/E of 20.6). The company will likely see its valuation multiples increase as its digital sales continue to grow. The company is up about 10% since last month as U.S. comparable store sales increased for the first time in several quarters. Maximum Drawdown (starting in year 2000): -37% in October of 2000 Dividend Stats Dividend Yield: 2.28% 10 Year Dividend Growth Rate: 14.00% per year Most Recent Dividend Increase: 2.13% Dividend History: 41 Consecutive years of dividend increases

6 Page 6 ExxonMobil (XOM) Overview & Current Events ExxonMobil is the world s largest publicly traded oil company, and 3 rd largest publicly traded corporation overall (behind Apple and Microsoft) with a market cap of about $400 billion. Nearly 90% of ExxonMobil s profits come from its highly lucrative upstream business. The company also has smaller downstream and chemical business units. ExxonMobil holds the all time record for most profits in a year of any corporation. ExxonMobil increased EPS 6% in its most recent quarterly report (10/31/14). The company saw production decrease 4.7% due primarily to the expiration of its Abu Dhabi onshore concession. Excluding Abu Dhabi, ExxonMobil saw oil production rise slightly on gains in North American production. The company s stock fell sharply this month before recovering later on in the month due to falling oil prices as OPEC announced it will not reduce production. ExxonMobil s long-term profitability is not affected, although it will likely see lower earnings in the short run. Next Dividend Record Date: January 12 th, 2015 Next Earnings Release: End of January, 2015 Competitive Advantage & Recession Performance ExxonMobil s competitive advantage comes from its size, history, and technical knowledge in its highly profitable upstream business. ExxonMobil s massive size coupled with its history working with the US government and other oil companies give it access to lucrative oil & gas investment opportunities that smaller companies do not have the connections or resources in which to invest. Despite its strong competitive advantage, ExxonMobil s short-term earnings are affected by recessions and falling oil prices. ExxonMobil s earnings took a significant dip from $11.58/share to $6.60/share in The company s profit margins are somewhat sensitive to recessions, as oil prices tend to decline during times of economic hardship. The company s long-term outlook is not impacted by short term (or even multiyear) recessions as ExxonMobil tends to remain profitable in economic downturns. Growth Prospects, Valuation, & Catalyst ExxonMobil s future growth will come from increasing demands for energy brought on by global GDP per capita growth. Energy demand for oil is expected to rise as far out as The company is well positioned to take advantage of rising global energy demand. ExxonMobil is undervalued with a P/E ratio of just The company is still trading near the bottom of its historical P/E 10 ratio range, despite a shareholder friendly management and long-growth runway. ExxonMobil shareholders will likely benefit from gains due to an increase in the company s P/E ratio when the business reports increasing volume growth, or when oil prices increase. Maximum Drawdown (starting in year 2000): -37% in July of 2010 Dividend Stats Dividend Yield: 2.94% 10 Year Dividend Growth Rate: 9.84% per year Most Recent Dividend Increase: 9.52% Dividend History: 32 consecutive years of dividend increases

7 Page 7 General Mills (GIS) Overview & Current Events General Mills has paid dividends for 114 years. The company s stability comes from its portfolio of consumer brands which includes: Cheerios, Nature Valley, Lucky Charms, Yoplait, Hidden Valley, and Progresso (among others). General Mills saw constant-currency revenue decline 1% for its most recent earnings release (9/17/14). The company recently announced (11/7/14) that EPS growth will be lower than expected in The new guidance is low single digit EPS growth due to slowed growth in emerging markets and weakness in the US for General Mills. Next Dividend Record Date: Mid January, 2015 Next Earnings Release: December 17 th, 2014 Competitive Advantage & Recession Performance General Mills is able to sell its grocery products at premium prices because of its well established brands. The company is especially dominant in cereal, where it owns the Cheerios, Lucky Charms, Chex, Trix, and Wheaties brands. General Mills sells staple food products. Food is one of the few items people don t cut back on during recessions. General Mills increased revenue, earnings, and dividends each year from 2007 through 2009 during the Great Recession. The company is highly insulated from the effects of economic downturns. Growth Prospects, Valuation, & Catalyst General Mills currently generates about 65% of its revenue from the US. The company plans to propel growth through capitalizing on health trends. General Mills showed improvement in Yogurt sales recently. Its renewed focus on healthy products (especially in cereal) will likely return the company to growth in the US. In addition to renovating its US brands, General Mills has significant growth opportunities overseas. The company has grown international sales at a 16% CAGR since 2009, and currently generates 35% of sales internationally. General Mills has a P/E ratio of about 19 which is in line with the general market. The company is likely trading near fair value. Investors should expect returns from growth and dividends, not an increase in the P/E multiple. Maximum Drawdown (starting in year 2000): -32% in March of 2009 Dividend Stats Dividend Yield: 3.09% 10 Year Dividend Growth Rate: 9.53% per year Most Recent Dividend Increase: 7.89% Dividend History: 116 consecutive years without a reduction

8 Page 8 PepsiCo (PEP) Overview & Current Events PepsiCo is the 2 nd largest soda business in the world (behind only Coca-Cola). The company generates more than 50% of its revenue from salty snacks including its many Frito-Lay brands. In total, PepsiCo has 22 brands that generate over $1 billion per year in sales. PepsiCo s 3 rd quarter results were positive. Constant-currency EPS grew 11%, emerging market revenue grew 8%, and the company expanded its gross margin. In addition, the company raised its full year guidance from 8% EPS growth to 9%. PepsiCo s strong growth run continues. Next Dividend Record Date: Early March, 2015 Next Earnings Release: Early December, 2014 Competitive Advantage & Recession Performance PepsiCo s competitive advantage lies in its highly recognizable brands. It reinforces brand awareness through strong advertising. In 2013, PepsiCo spent $3.9 billion on advertising and marketing, which is nearly 6% of total revenues. PepsiCo s strong branding and low priced consumer food and beverage products insulate it from much of the effects of recessions. PepsiCo s operating performance was stellar over the 2007 to 2009 Great Recession. The company s revenue dipped slightly from 2008 to 2009, and earnings had a small dip from 2007 to Recessions have historically slowed PepsiCo s growth, but have done little to impact its profitability. Growth Prospects, Valuation, & Catalyst PepsiCo s flagship Pepsi brand and other carbonated beverages are experiencing stagnant growth as consumers change their beverage preferences to still drinks. The company s growth potential lies with its Frito-Lay and still beverage brands coupled with market penetration in the developing world. PepsiCo s current P/E ratio is about 21, which is close to its historical average. The company is slightly more expensive than the overall market, but is of a higher quality than the average publicly traded stock. PepsiCo has had double-digit revenue and dividend growth over the last ten years. The company has positioned itself to take advantage of growth in the developing world. Maximum Drawdown (starting in year 2000): -40% in March of 2009 Dividend Stats Dividend Yield: 2.68% 10 Year Dividend Growth Rate: 11.00% per year Most Recent Dividend Increase: 15.32% Dividend History: 42 Consecutive years of dividend increases

9 Page 9 ConocoPhillips (COP) Overview & Current Events ConocoPhillips is a large oil and gas corporation with a market cap of $85.3 billion. The company can trace its history back to Today, ConocoPhillips employs over 18,000 people in 27 countries around the world. ConocoPhillips goal is to generate 3% to 5% production growth and 3% to 5% growth from efficiency gains each year. The company accomplished its production growth goals (4% growth) in its most recent quarter (10/30/14). It did not accomplish its efficiency gains goal as operating costs increased on the quarter. ConocoPhillips stock has fallen in recent weeks due to OPEC s announcement that it will not reduce production, causing oil prices to fall. Next Dividend Record Date: Mid February, 2015 Next Earnings Release: Early February, 2015 Competitive Advantage & Recession Performance ConocoPhillips competitive advantage comes from its global scale. The company is also one of the lowest cost producers in North American unconventional oil (fracking). ConocoPhillips can produce unconventional North American oil at about $40 per barrel, one of the lowest costs in the industry. The company has prime drilling locations in both the Bakken and Eagle Ford fields in North America. ConocoPhillips is sensitive to recessions because oil prices tend to drop during recessions as demand falls. The company s EPS decreased from a high of $10.66 in 2008 down to just $3.24 in ConocoPhillips did remain profitable throughout the Great Recession. Oil prices dictate the company s profitability in the short-term. In the long-run, global demand for energy will determine ConocoPhillips profitability. Growth Prospects, Valuation, & Catalyst ConocoPhillips growth plans are centered around expanding North American unconventional oil production at about 20% per year. The recent OPEC announcement and resulting low oil prices will likely reduce ConocoPhillips production increases. With that said, oil prices will rise again at some point, and ConocoPhillips will be ready to increase production rapidly. Investors get paid to wait with ConocoPhillips. The company has a 4.3% dividend yield and a P/E ratio of just 9; less than half of the S&P 500 s P/E ratio. ConocoPhillips appears significantly undervalued at this time. The company should see its P/E ratio expand when oil prices rise. Maximum Drawdown (starting in year 2000): % in February of 2009 Dividend Stats Dividend Yield: 4.30% 10 Year Dividend Growth Rate: 10.29% Most Recent Dividend Increase: 5.80% Dividend History: 37 consecutive years without a reduction

10 Page 10 McDonald s (MCD) Overview & Current Events McDonald s is the largest publicly traded restaurant in the world; nearly 3 times as large as its closest competitor (Yum! Brands) by market cap. McDonald s has 35,000+ locations around the world. McDonald s October sales report (released 11/10/14) showed comparable store sales were down in all 3 of its segments. McDonald s did show significant improvement. The table below shows how comparable store sales improved in October versus the company s 3 rd quarter results, which ended in September. Comparable store sales were negative in October, but less negative than third quarter sales. October 2014 results are compared to October 2013 results, and the 3 rd quarter of 2014 is compared to the 3 rd quarter of 2013 results: Segment October Comparable Sales 3 rd Qtr Comparable Sales U.S. Down 1.0% Down 3.3% Europe Down 0.7% Down 1.4% APMEA 1 Down 4.2% Down 9.9% Next Dividend Record Date: December 15, 2014 Next Earnings Release: Late January, 2015 Competitive Advantage & Recession Performance McDonald s derives its competitive advantage from its strong brand and franchising business model. McDonald s franchising model allows it to grow quickly and realize higher return on assets than a store-owned business model. The company s golden arches and McDonald s brand are recognizable throughout the world. The company s brand is associated with cheap hamburgers and fast service. The Great Recession of 2007 to 2009 did not impact McDonald s. The company grew revenue per share, earnings per share, and dividends per share each year throughout the recession. The company s low priced food items do well in recessions as consumers switch from more expensive restaurants. Growth Prospects, Valuation, & Catalyst McDonald s long-term growth prospects are more favorable than negative current events indicate. The company has plans to return its US operations to growth by simplifying its menu and better controlling its public image. The tainted meat situation in China and store closures in Russia due to political issues are likely onetime events that will not impact long-term performance. The company currently trades at a P/E ratio of The median P/E ratio for mid and large cap restaurant companies is about 27. McDonald s has significant upside potential that will likely be realized when the company returns to positive comparable store sales growth. Maximum Drawdown (starting in year 2000): -70% in March of 2003 Dividend Stats Dividend Yield: 3.53% 10 Year Dividend Growth Rate: 19.40% per year Most Recent Dividend Increase: 4.94% Dividend History: 39 consecutive years of dividend increases 1 APMEA stands for Asia Pacific, Middle East, & Africa

11 Page 11 Kellogg (K) Overview & Current Events Kellogg is a branded food manufacturer with 55% of sales coming from the US. The company owns the Kashi, Cheez-It, Pringles, Pop-Tart, Frosted Flakes, Rice Krispies, Froot Loops, and Bear Naked brands, as well as several other cereal brands. Kellogg is the global leader in cereal. Kellogg s latest earnings release (10/30/14) showed revenue was down in North America and the Asia Pacific region. The company saw positive revenue growth in Europe and Latin America. Kellogg is struggling in North America as consumers are slowly switching away from unhealthy cereals and weight-loss products to total health options. Kellogg s Kashi and Bear Naked brands are experiencing rapid growth, while other key brands are suffering. Kellogg has experienced headwinds in cereal before. The company did not eclipse cereal revenue highs from 1995 until Kellogg s history shows it can recover from cereal declines. The company s management is now focused on highlighting the health benefits of Kellogg s products, which will likely slowly turn around results. Next Dividend Record Date: Early March, 2015 Next Earnings February 12 th, 2015 Competitive Advantage & Recession Performance Kellogg s competitive advantage comes directly from its strong brands. The company has mismanaged its brands to some extent by failing to keep pace with industry trends. Management appears to be correcting this issue by focusing on the health benefits of the company s products. Kellogg increased its EPS each year through the Great Recession of 2007 to The company s low priced consumer food products are minimally impacted by recessions. Consumers will buy chips and cereal regardless of the overall economic climate. Growth Prospects, Valuation, & Catalyst Kellogg s short-term growth will come from invigorating its important cereal business. The company s focus on health and increased marketing spending should return cereal to growth over the next 1 to 2 years. Over the long-term, Kellogg s growth will come from further expansion into international markets, especially China and India. Kellogg is currently trading at a P/E ratio of Kellogg has historically traded in line with the S&P 500 s P/E ratio which currently sits around 20. Kellogg appears to be undervalued relative to the market at current prices. Kellogg will likely see its P/E ratio revise upward over the next one to two years when its US cereal division returns to growth. Maximum Drawdown (starting in year 2000): % in March of 2009 Dividend Stats Dividend Yield: 2.95% 10 Year Dividend Growth Rate: 6.70% Most Recent Dividend Increase: 6.52% Dividend History: 55 consecutive years without a reduction

12 Page 12 Coca-Cola (KO) Overview & Current Events Coca-Cola is the world s leading beverage company. The company has 17 brands that sell over $1 billion annually including: Coca-Cola, Sprite, Fanta, Dasani, Simply (orange juice), and Minute Maid. Coca-Cola was founded in 1892 and has increased dividends for 52 consecutive years. Coca-Cola s latest earnings release (10/21/14) showed modest growth for the company. Constantcurrency EPS increased 6%, and constant currency revenue increased 1%. The company s beverage volume growth is shown below: Eurasia & Africa: 4% increase Europe: 5% decrease Latin America: 1% increase North America: 1% decrease Asia Pacific: 2% increase Next Dividend Record Date: Mid March, 2015 Next Earnings Release: Late January, 2015 Competitive Advantage & Recession Performance Coca-Cola s competitive advantage comes from its powerful brands. Coca-Cola supports its brands by spending over $3 billion per year on advertising. The company s dominance in the beverage industry gives it more advertising power than competitors (other than PepsiCo), further reinforcing Coca-Cola s brand based competitive advantage. Coca-Cola was minimally affected by the Great Recession of 2007 to The company s earnings per share dipped 2.6% in 2009, but overall performance was not severely impacted. The company is resistant to recessions because it sells low cost consumer beverages. Growth Prospects, Valuation, & Catalyst Coca-Cola s future growth will come from market share gains and growth in developing markets. The company will likely experience strong growth in its non-carbonated brands and flat growth in carbonated beverages going forward. Coca-Cola has captured 33% of global juice growth since Additionally, the company has strategic partnerships and equity ownership in both Green Mountain Coffee Roasters (Keurig maker) and Monster Beverage which shows the company can capitalize on new trends in the beverage industry. Coca-Cola trades at a P/E ratio of about 21 which is slightly above its 10 year historical average. The company is trading in line with the S&P 500 s P/E ratio at this time. Traditionally, it has traded at a premium of 1.1x to the overall stock market. Coca-Cola appears fairly valued based on the markets current P/E ratio, and slightly overvalued on a historical basis. Investors should expect gains from dividends, share repurchases, and organic growth, not valuation multiple expansion. Maximum Drawdown (starting in year 2000): -42% in March of 2003 Dividend Stats Dividend Yield: 2.80% 10 Year Dividend Growth Rate: 9.33% per year Most Recent Dividend Increase: 8.93% Dividend History: 52 consecutive years of dividend increases

13 Page 13 Abbott Laboratories (ABT) Overview & Current Events Abbott Laboratories designs and produces nutritional products (33% of sales), medical devices (26% of sales), pharmaceuticals (18% of sales), and diagnostic equipment (23% of sales). The $68 billion health care giant has positioned itself to take advantage of emerging market growth with 50% of sales coming from emerging markets, 30% from the US, and 20% from other developed economies. Abbott Laboratories most recent 3 rd quarter results were strong. EPS increased 12.7%, and sales grew 6.7%, with 15% growth in emerging markets. The company realized its fastest revenue growth in its established pharmaceuticals division, which grew revenue 12.9%. The company completed the acquisition of CFR Pharmaceuticals on September 26 th, boosting its presence in the Latin American pharmaceuticals market. In July of this year Abbott announced plans to sell off its developed market pharmaceuticals to Mylan (MYL). These two moves put Abbott Laboratories pharmaceutical segment entirely in emerging markets, with no exposure to developed markets. Next Dividend Record Date: Mid January, 2015 Next Earnings Release: Mid January, 2015 Competitive Advantage & Recession Performance Abbott Laboratories has a strong competitive advantage in nutrition from infants to the elderly. The company owns the Ensure, Pedialyte, Similac, Zone Perfect, and Elecare nutrition brands. The company s strong brands have given it leading market share in global nutrition. The company has invested heavily in emerging markets and now has strong health care connections and distribution internationally. The company is the top pharmaceutical company in India, top generic pharmaceutical company in Russia, and a top 10 pharmaceutical company in Latin America. Abbott Laboratories managed to grow revenue, earnings, and dividends each year through the Great Recession of 2007 to Consumers and governments typically do not cut back on health care expenditures regardless of the economic climate. Growth Prospects, Valuation, & Catalyst Abbott Laboratories emerging market penetration gives it excellent long-term growth prospects. The combination of emerging market economic growth and aging populations make an excellent macroeconomic environment to promote Abbott Laboratories growth. The company further increased its exposure to emerging markets with its recently announced acquisition of CFR Pharmaceuticals. Abbott Laboratories is trading at a P/E ratio of about 21 (using its more accurate operating EPS, not GAAP EPS). The company appears to be fairly valued at this time. Gains from Abbott will come primarily from growth and dividends, not valuation multiple increases. Maximum Drawdown (starting in year 2000): -46% in July of 2002 Dividend Stats Dividend Yield: 1.94% 10 Year Dividend Growth Rate: 5.84% Most Recent Dividend Increase: 57.14% Dividend History: 42 consecutive years of dividend increases

14 Page 14 Philip Morris International (PM) Overview & Current Events Philip Morris is the world s largest cigarette company, with a market cap of $130 billion. The company sells Marlboro, Parliament, Virginia Slims, and other cigarette brands internationally. Its sister company Altria sells the same brands in the US. Philip Morris is one of the most well-managed companies I have analyzed. Despite operating in a declining industry, the company grew EPS by 10.4% in the 3 rd quarter of 2014 versus the same quarter a year ago. Philip Morris was able to grow EPS in double digits despite cigarette volume declines by increasing prices, reducing expenses, and repurchasing shares. In addition, the stock has a dividend yield near 4.5%. Next Dividend Record Date: End of December, 2014 Next Earnings Release: Mid January, 2015 Competitive Advantage & Recession Performance Philip Morris competitive advantage comes from its strong brands. Marlboro is one of the most valuable global cigarette brands. Philip Morris controls nearly 40% of the cigarette market in Europe. In addition, Philip Morris sells a highly addictive product and can increase prices to offset additional taxes levied by governments around the world due to the inelastic demand curve for its products. Philip Morris was spun-off from its sister company Altria during the most recent recession. Tobacco businesses have traditionally performed well through recessions, as consumers tend to smoke the same amount (or more) of cigarettes during times of economic hardship. Growth Prospects, Valuation, & Catalyst Philip Morris shareholders will receive strong returns from the company s high dividend yield, large share repurchases, and organic growth. The company s long-term growth will come from the e-vapor industry, which is still in its infancy. Philip Morris has partnered with Altria to create new products and to license each other s current offerings in the burgeoning e-vapor industry, which is expected to grow rapidly. The company trades at a P/E ratio of about 17, which is in line with its historical P/E average. Philip Morris is a high quality business trading at about its fair value. Its management s capital allocation skills are first class, which will likely result in continued strong returns for shareholders. Maximum Drawdown (starting in year 2000): -41% in March of 2009 Dividend Stats Dividend Yield: 4.59% 10 Year Dividend Growth Rate: 10.82% for past 5 years, per year (10 year data not available) Most Recent Dividend Increase: 6.38% Dividend History: 31 consecutive years of dividend increases (Counting Altria history before spin-off)

15 Page 15 List of Stocks by Segment Each of the 138 stocks with 25 or more years of dividend payments without a reduction are sorted by sector below. Stocks are listed in order, with the highest ranked based on the 8 Rules of Dividend Investing first, and the lowest ranked last. Basic Materials 1. ExxonMobil (XOM) 2. ConocoPhillips (COP) 3. Helmerich & Payne (HP) 4. Chevron (CVX) 5. Valspar (VAL) 6. Imperial Oil (IMO) 7. Enbridge (ENB) 8. Sherwin-Williams (SHW) 9. Sigma-Aldrich (SIAL) 10. HB Fuller (FUL) 11. PPG Industries (PPG) 12. RPM International (RPM) 13. National Fuel Gas (NFG) 14. Air Products & Chem. (APD) 15. Energen (EGN) 16. NACCO Industries (NC) 17. Nucor (NUE) Consumer Goods 1. General Mills (GIS) 2. PepsiCo (PEP) 3. Kellogg (K) 4. Coca-Cola (KO) 5. Philip Morris International (PM) 6. J.M. Smucker (SJM) 7. Kimberly-Clark (KMB) 8. McCormick & Company (MKC) 9. Ecolab (ECL) 10. Altria (MO) 11. Hormel Foods (HRL) 12. Archer-Daniels-Midland (ADM) 13. Colgate-Palmolive (CL) 14. Procter & Gamble (PG) 15. Clorox (CLX) 16. Bemis Company (BMS) 17. Hershey (HSY) 18. Universal Corporation (UVV) 19. Nike (NKE) 20. Sonoco Products (SON) 21. Mondelez (MDLZ) 22. V.F. Corporation (VFC) 23. Kraft (KRFT) 24. Weyco Group (WEYS) 25. Stepan Company (SCL) 26. Brown-Forman (BF-B) 27. Tootsie Roll Industries (TR) 28. Carlisle Companies (CSL) 29. Lancaster Colony (LANC) 30. Leggett & Platt (LEG) 31. Johnson Controls (JCI) 32. Nestle (NESN) 33. HNI Corporation (HNI)

16 Page 16 Financial 1. AFLAC (AFL) 2. Chubb (CB) 3. Commerce Bankshares (CBSH) 4. Tompkins Financial (TMP) 5. T. Rowe Price Group (TROW) 6. Franklin Resources (BEN) 7. Eaton Vance (EV) 8. First Financial Bank (FFIN) 9. RLI Corporation (RLI) 10. McGraw Hill Financial (MHFI) 11. Community Trust (CTBI) st Source Corporation (SRCE) 13. Eagle Financial Services (EFSI) 14. Universal Health Realty (UHT) 15. First Financial Corp. (THFF) 16. HCP, Inc. (HCP) 17. Arthur J Gallagher & Co (AJG) 18. Harleysville Savings (HARL) 19. Northern Trust (NTRS) 20. Mercury General (MCY) 21. Old Republic Int l (ORI) 22. Cincinnati Financial (CINF) 23. United Bankshares (UBSI) 24. Federal Realty Trust (FRT) Industrial Goods 1. Pentair (PNR) 2. United Technologies (UTX) 3. Dover Corporation (DOV) 4. 3M (MMM) 5. Parker-Hannifin (PH) 6. Emerson Electric (EMR) 7. Nordson Corporation (NDSN) 8. Stanley Black & Decker (SWK) 9. Illinois Tool Works (ITW) 10. Donaldson Company (DCI) 11. Raven Industries (RAVN) 12. Clarcor (CLC) 13. Gorman-Rupp (GRC) 14. Tennant Company (TNC) Services 1. Wal-Mart (WMT) 2. McDonald s (MCD) 3. W.W. Grainger (GWW) 4. Walgreen (WAG) 5. Cintas Corporation (CTAS) 6. Empire Company (EMP-A.TO) 7. Sysco Corporation (SYY) 8. Genuine Parts Company (GPC) 9. Target (TGT) 10. Disney (DIS) 11. Family Dollar Stores (FDO) 12. United Parcel Service (UPS) 13. Lowe s Companies (LOW) 14. ABM Industries (ABM) 15. Cardinal Health (CAH) 16. Bowl America (BWL-A) 17. Mine Safety Appliances (MSA) Technology 1. AT&T (T) 2. BCE Inc. (BCE) 3. Verizon Wireless (VZ) 4. Auto. Data Processing (ADP) 5. Computer Services Inc. (CSVI) 6. Brady Corporation (BRC) 7. Diebold Incorporated (DBD) 8. Telephone & Data Syst. (TDS)

17 Page 17 Utilities 1. UGI Corporation (UGI) 2. Fortis (FTS.TO) 3. Consolidated Edison (ED) 4. Canadian Utilities (CU.TO) 5. SJW Corporation (SJW) 6. Black Hills Corporation (BKH) 7. Northwest Natural Gas (NWN) 8. Atmos Energy (ATO) 9. American States Water (AWR) 10. Questar Corporation (STR) 11. Vectren Corporation (VVC) 12. WGL Holdings (WGL) 13. MGE Energy (MGEE) 14. Connecticut Water (CTWS) 15. Piedmont Natural Gas (PNY) 16. Otter Tail (OTTR) 17. Middlesex Water (MSEX) 18. California Water Service (CWT) Health Care 1. Abbott Laboratories (ABT) 2. Becton, Dickinson & Co. (BDX) 3. Johnson & Johnson (JNJ) 4. Medtronic (MDT) 5. United Health Group (UNH) 2 6. CR Bard (BCR) 7. AbbVie (ABBV) 2 UNH has 24 years of consecutive dividend payments without a reduction. The company will reach 25 years by January 2015.

18 Page 18 Performance This section tracks the total return of each Sure Dividend recommendation and compares them to the total return (including dividends) of the stock market (as measured by the ticker SPY) over the same time period. Ticker Start Date Start Price Div. Pmts. Price Now Total Return Market Return Difference WMT 7-Apr $ $ 1.44 $ % 13.90% -3.23% PEP 7-Apr $ $ 1.97 $ % 13.90% 4.94% KO 7-Apr $ $ 0.92 $ % 13.90% 1.18% MCD 7-Apr $ $ 2.49 $ % 13.90% % CB 7-Apr $ $ 1.00 $ % 13.90% 4.27% XOM 7-Apr $ $ 2.07 $ % 13.90% % KMB 7-Apr $ $ 2.45 $ % 13.90% -8.11% AFL 7-Apr $ $ 1.13 $ % 13.90% % CLX 7-Apr $ $ 2.19 $ % 13.90% -0.10% TGT 7-Apr $ $ 1.47 $ % 13.90% 10.28% GPC 5-May $ $ 1.73 $ % 11.44% 12.46% MMM 5-May $ $ 2.57 $ % 11.44% 5.79% GIS 2-Jun $ $ 0.82 $ % 8.85% % T 2-Jun $ $ 0.92 $ % 8.85% % PM 2-Jun $ $ 1.94 $ % 8.85% -7.99% BDX 2-Jun $ $ 1.09 $ % 8.85% 9.95% ABT 7-Jul $ $ 0.44 $ % 5.80% 4.39% ECL 6-Oct $ $ - $ % 5.97% -9.83% SJM 3-Nov $ $ 0.64 $ % 3.09% -4.73% *Comparisons are virtually worthless over short timeframes (like the 8 months or less above). 3 years or longer is a fair timeframe to judge performance. This month several Sure Dividend stocks posted strong gains. Wal-Mart made up over 7 percentage points of ground on the S&P 500. Target did even better, gaining over 16 percentage points on the market over the last month. McDonald s, ExxonMobil, and AFLAC are dragging down overall performance. I believe all three of these stocks to be excellent values at current prices. Dividend Aristocrats tend to outperform the market during recessions and slightly underperform during bull markets. Much of Sure Dividend s history has been during a bull market. Over a long-horizon (3+ years), I believe the total return of the Sure Dividend strategy will outpace the total return of the stock market, with less volatility. This performance page will be more relevant as Sure Dividend has years of data instead of months. This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

19 Portfolio Building Guide Page 19 Each month invest in the top ranked stock in which you own the smallest dollar amount. Over time, you will build a well-diversified portfolio of great businesses purchased at attractive prices. Examples Portfolio 1 Portfolio 2 Ticker Name Amount Ticker Name Amount WMT Wal-Mart Stores Inc. $ 1,002 WMT Wal-Mart Stores Inc. $ 4,374 XOM ExxonMobil Corp. $ - XOM ExxonMobil Corp. $ 4,878 GIS General Mills $ - GIS General Mills $ 4,353 PEP PepsiCo Inc. $ - PEP PepsiCo Inc. $ 2,952 COP ConocoPhillips $ - COP ConocoPhillips $ 3,309 MCD McDonald's Corp. $ - MCD McDonald's Corp. $ 4,864 K Kellogg $ - K Kellogg $ 6,660 KO Coca-Cola Company $ - KO Coca-Cola Company $ 2,367 ABT Abbott Laboratories $ - ABT Abbott Laboratories $ 2,818 PM Philip Morris $ - PM Philip Morris $ 6,243 - If you had portfolio 1, you would buy ExxonMobil, the top ranked stock you own least. - If you had portfolio 2, you would buy Coca-Cola, the top ranked stock you own least. If you have an existing portfolio, switch over to the Sure Dividend strategy over a period of 20 months. Each month, take 1/20 of your initial portfolio value, and buy the top ranked stock you own the least (as per the examples above). When you sell a stock, use the proceeds to purchase the top ranked stock you own the least. Reinvest dividends in the same manner. This simple investing process will build a diversified portfolio of high quality dividend stocks over a period of less than 2 years. Further, higher ranked stocks will receive proportionately more investment dollars as they will stay on the rankings longer. You will build up large positions in the highest quality stocks over your investing career. Alternatively, the Top 10 list is also useful as an idea generation tool for those with a different portfolio allocation plan. This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

20 Page 20 List of Past Recommendations The stocks below are all of the previous recommendations of Sure Dividend using The 8 Rules of Dividend Investing. The date each stock was first recommended is shown as well. Name Ticker Current Rank Status 1 st Rec. Date Clorox CLX 42 Hold April 2014 Target TGT 64 Hold April 2014 AFLAC AFL 12 Hold April 2014 Chubb CB 15 Hold April 2014 Kimberly-Clark KMB 13 Hold April 2014 Genuine Parts Co. GPC 61 Hold May M MMM 41 Hold May 2014 AT&T T 23 Hold June 2014 Becton, Dickinson BDX 17 Hold June 2014 EcoLab ECL 25 Hold October 2014 J.M. Smucker SJM 11 Hold November 2014 When a stock comes up as a sell, it will be highlighted here as well as in the opening thoughts segment of the newsletter. So far, no stock recommendations have come up as a sell using The 8 Rules of Dividend Investing. This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

21 Ending Thoughts This month the Sure Dividend strategy generated returns slightly higher than the overall S&P 500. AFLAC and ExxonMobil remain the worst performing Sure Dividend selections versus the market. I believe these 2 stocks represent excellent values in today s market for long-term investors. ExxonMobil s stock price is depressed due to fears of protracted low oil prices. The company is trading at a P/E ratio of under 12 and has managed to grow dividends per share for 32 consecutive years. ExxonMobil has rewarded shareholders through oil crises in the past, and it will very likely do so again. When I see a company as strong as ExxonMobil with a P/E ratio of 11.8, the Warren Buffett quote price is what you pay, value is what you get comes to mind. AFLAC s stock price is suppressed due to Japanese currency and economic fears. AFLAC holds a large portion of its investable securities in Japanese bonds, which will likely generate negative real returns going forward. The company s underlying insurance business is what gives the company its long-term value (not its current investment portfolio). AFLAC s rock solid brand and market dominance in Japan can be owned for a P/E ratio of just 9.5. The company narrowly missed the Top 10 list this month due to its high (40%+) price volatility. Regardless, it is an excellent value in the insurance industry at this time for investors who can withstand price volatility. Purchasing high quality dividend growth stocks that have a long history of rising dividend payments increases the chance of compounding wealth year after year. I believe the companies listed in this newsletter are high quality businesses that will continue to increase their dividend payments far into the future. Thanks, Ben Reynolds Disclaimer Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this newsletter should be construed as a recommendation to follow any investment strategy or allocation. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in securities. Past performance is not a guarantee of future performance.