Sure Dividend. February 2016 Edition HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN. By Ben Reynolds

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1 Sure Dividend HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN February 2016 Edition By Ben Reynolds

2 2 Table of Contents Opening Thoughts -Declining Oil & Sell Recommendations The Top 10 List February Analysis of Top 10 Stocks... 5 Archer-Daniels-Midland (ADM)... 5 Johnson Controls (JCI)... 7 Cummins (CMI)... 9 United Technologies (UTX) Abbott Laboratories (ABT) Deere & Company (DE) Becton, Dickinson & Company (BDX) Wal-Mart (WMT) Verizon (VZ) W.W. Grainger Analysis of International Stocks List of Stocks by Sector List of Stocks by Rank Portfolio Building Guide Examples List of Past Recommendations Closing Thoughts... 34

3 3 Opening Thoughts -Declining Oil & Sell Recommendations- The S&P 500 has declined 7.8% so far in Declining oil prices brought about by a supply glut are partially responsible for lower economic activity which is causing market declines. The idea that oil production would peak in 2005 is now laughable. The problem with Peak Oil and most other Malthusian predictions is they do not take into account human ingenuity. Rising oil prices (what happens when oil is scarce) creates a greater incentive for people to find oil. Over time this results in new technologies like hydraulic fracturing that have stimulated supply. Will oil prices rise again? Yes. Oil demand will rise in part due to low oil prices themselves while supply will shrink as corporations cease production on unprofitable oil sources. It s impossible to know when oil prices will rise, but it will occur at some point. That brings us to sell recommendations. Before this month, there has only been 1 Sure Dividend sell recommendation (Chubb because it was acquired). This month there are 2 sell recommendations: Sell #1 Baxalta (BXLT) Baxalta is being acquired by Shire Plc. As a result, the company is no longer a dividend growth stock; it is now a merger arbitrage play. Baxalta should be sold when markets open next week. The stock was first recommended in the newsletter in July of 2015 at $31.77 per share. The stock is currently trading for $37.98 per share for a 20% gain (including dividends). For comparison the S&P 500 had total returns of -8% over the same time period. Sell #2 ConocoPhillips (COP) ConocoPhillips recently cut its quarterly dividend from $0.74 to $0.25 per share. As a result, it no longer has the dividend history required to be a Sure Dividend stock. However, the stock should not be sold immediately. Most companies cut dividends because they are in decline. ConocoPhillips decline is temporary in nature and a result of low oil prices not of a permanent business decline. The company should be sold after oil prices recover, not before. I will be watching the stock and recommend a sale price in this newsletter at a later date.

4 4 The Top 10 List February 2016 Ticker Name Score Months Yield Payout Growth Beta Volatility ADM Archer-Daniels-Midla % 38% 10.0% % JCI Johnson Controls % 34% 10.3% % CMI Cummins % 41% 14.0% % UTX United Technologies % 38% 8.5% % ABT Abbott Laboratories % 46% 10.0% % DE Deere & Co % 42% 13.3% % BDX BDX % 58% 8.0% % WMT Wal-Mart % 41% 6.0% % VZ Verizon Wireless % 59% 6.0% % GWW W.W. Grainger % 38% 12.5% % Notes: The Score column shows how close the composite rankings are between the top 10. The highest ranked stock will always have a score of 1. The closer the score is to 1, the better. Stocks are ranked using the criteria in The 8 Rules of Dividend Investing. The Months column shows the number of consecutive months a stock has been in the Top 10. General Mills was replaced by BDX this month. No other companies were added or removed from the Top 10 this month. Changes in the top 10 occur with new financial news and stock price changes. The stability of the top 10 list shows the ranking method is consistent, not based on rapid swings. An equally weighted portfolio of the top 10 has the following characteristics: Top 10 S&P500 Dividend Yield: 3.1% 2.3% Payout Ratio: 42.0% 47.8% Growth Rate: 10.1% 7.4% PE Ratio:

5 5 Analysis of Top 10 Stocks Archer-Daniels-Midland (ADM) Overview & Current Events ADM was founded in 1902 and now employs over 33,000 people in 140 countries. ADM realized adjusted earnings-per-share of $0.61 in its most recent quarter (2/2/16) versus $1.00 in the same quarter a year ago. ADM s business is cyclical and is currently in a downturn. The company s dividend is very safe despite the downturn. Management announced a ~7% dividend increase, bringing the company s quarterly dividend to $0.30/share for a payout ratio of ~50%. Next Dividend Record Date: February 16 th, 2016 Next Earnings Release: Mid April 2016 Competitive Advantage & Recession Performance ADM s competitive advantage comes from its excellent global distribution network. The company owns the following: 283 processing plants, 413 procurement facilities, ~250 warehouses, and many rail cars, trucks, and ocean vessels for transportation. It would take an enormous upfront capital investment for a competitor to come close to matching the scale and distribution network of ADM. ADM is not subject to normal economic cycles. Grains still need to be processed and transported, even during recessions. The company s results are correlated with grain and oil prices; not with overall economic activity. As a result, ADM tends to do well during recessions. The company saw earningsper-share rise each year through the Great Recession as demand for ethanol increased. Growth Prospects, Valuation, & Catalyst ADM has compounded EPS at 13.6% a year from 1999 through Investors should expect total returns of 10.5% to 13.5% a year from the stock s 3.5% dividend yield and expected EPS growth of 7% to 10% a year. The long-term growth driver for ADM is increased food consumption from growing global populations. ADM s management is shedding low margin businesses and acquiring higher margin businesses. Recent acquisitions include: WILD Flavors (flavorings and additives) and Harvest Innovations (Non-GMO, organic, and gluten-free ingredients). ADM s cyclical downturn has made the stock a bargain. ADM is currently trading for an adjusted P/E ratio of ADM s historical median P/E ratio over the last decade is around Earnings are depressed at $2.98/share. EPS under normal economic conditions would be ~$3.50. Using normal EPS of $3.50 and the company s median average P/E ratio of 13.5 implies a fair value of ~$47/share. The company is currently trading at ~$34 per share, a 28% discount to fair value. Maximum Drawdown (starting in year 2000): -68% in October of 2008 DRIP Available: Yes, with fees Dividend Yield: 3.5% 10 Year EPS Growth Rate: 4.5% per year (low due to current downturn) 10 Year Dividend Growth Rate: 11.2% per year Most Recent Dividend Increase: 7.1% Dividend History: 41 consecutive years of dividend increases

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7 7 Johnson Controls (JCI) Overview & Current Events Johnson Controls manufactures car interiors and components, building control systems and power solutions, and battery systems. The company was founded in Today, Johnson Controls has the following automotive market shares by region: China 44%, North & South America 36%, Europe 38%, SE Asia, Japan, Korea 13%. Johnson Controls continues to post excellent results (1/28/16). The company saw adjusted EPS increase 11% in its most recent quarter due to revenue growth, rising margins, and share repurchases. Next Dividend Record Date: March 11 th, 2016 Next Earnings Release: Late April, 2016 Competitive Advantage & Recession Performance Johnson Controls history and size give it a competitive advantage in the automotive manufacturing market. The company s global reach and large market share in China make it difficult for new entrants to compete with Johnson Controls. Johnson Controls is not recession resistant. The company saw EPS plummet from $2.33 per share to $0.47 per share during the Great Recession. Johnson Controls serves the automobile and construction industries, both of which are highly sensitive to downturns in the global economy. The company s low payout ratio and commitment to steady or rising dividends helped the company to continue paying dividends through the Great Recession, when other automotive companies eliminated dividends. Growth Prospects, Valuation, & Catalyst Johnson Controls is expecting 8% to 14% EPS growth in Over the long-run I expect EPS growth of between 7% and 9%, in line with historical averages. This growth combined with the company s ~3% dividend yield gives investors expected returns of 10% to 12% a year. The company s long-term growth driver is population growth in emerging markets especially China. Johnson Controls currently has 44% market share in the Chinese automotive market. Greater need for energy storage due to variable solar and wind power generation will also provide favorable tailwinds for the company s power and battery solution systems. Johnson Controls plans to spin-off its automotive business in October of The company recently announced the name of this spin-off Adient. The spin-off will allow Johnson Control s two primary business units to pursue independent strategies, which will benefit shareholders. The company s historical average P/E ratio is ~13.5. Johnson Controls is currently trading for a P/E ratio of Shares of the company are trading for $35.78; fair value is likely around $46 per share for a 22% margin of safety. Maximum Drawdown (starting in year 2000): -80% in March of 2009 DRIP Available: Yes, with fees Dividend Yield: 3.2% 10 Year EPS Growth Rate: 7.7% per year 10 Year Dividend Growth Rate: 11.4% per year Most Recent Dividend Increase: 11.5% Dividend History: 38 years without a reduction

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9 9 Cummins (CMI) Overview & Current Events Cummins is the world s largest manufacturer of diesel engines. The company has 78% market share in mid-duty (MD) diesel truck engines in North America, 34% in heavy-duty (HD) diesel truck engines in North America, 42% MD & HD market share in truck diesel engines in India, and 17% MD & HD market share in truck diesel engines in China. Cummins full year 2015 (2/4/16) results showed adjusted earnings-per-share of $8.93, down from $9.13 the previous year. The company is expecting further earnings-per-share declines of between 2% and 10% in 2016 due to general weakness in the diesel engine industry brought about by the global growth slow down and the strong United States dollar. While declines are never good, results are better than what the market was expecting; Cummins stock rose 7.7% on the day of its earnings release. Next Dividend Record Date: Mid February, 2016 Next Earnings Release: Late April, 2016 Competitive Advantage & Recession Performance Cummins primary competitors are Navistar (NAV), Detroit Diesel, and Caterpillar (CAT). Navistar has a market cap of just $1 billion (small versus Cummins $16 billion market cap). Detroit Diesel is a private company, but is also much smaller than Cummins. Diesel engine manufacturing is not Caterpillar s primary business, unlike Cummins. As a result, Cummins has a well-deserved reputation for designing and manufacturing better diesel engines than its competitors. The company has spent over $2 billion in the last 3 years on research and development to support its diesel engine innovation. Cummins Earnings-per-share fell about 40% during the Great Recession. Still, the company remains profitable during recessions and its low payout ratio allows continued dividends through recessions. Growth Prospects, Valuation, & Catalyst Cummins grew earnings-per-share at 11.3% a year over the last decade. The company will likely manage double-digit earnings-per-share growth over the long-run through further international expansion, purchasing and consolidating its independent distributors, and share repurchases. Cummins P/E ratio has averaged ~15 over the last 2 years. The company is currently trading for a P/E ratio (using adjusted earnings) of just 11.1 and earnings are depressed. When the company s operating environment improves and margins normalize, the company will have earnings-per-share of ~$10. I estimate fair value for Cummins stock at around $150. It is currently trading for $99. Maximum Drawdown (starting in year 2000): -76% in November of 2008 DRIP Available: Yes, has fees and for current shareholders only Dividend Yield: 3.9% 10 Year EPS Growth Rate: 11.3% per year 10 Year Dividend Growth Rate: 30.3% Most Recent Dividend Increase: 25.0% Dividend History: 25 years without a reduction

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11 11 United Technologies (UTX) Overview & Current Events United Technologies is a large diversified manufacturer which owns the following: Otis elevators, Carrier air conditioning, Kidde smoke alarms, Pratt & Whitney aircraft propulsion, and UTC Aerospace Systems (aircraft components). United Technologies saw constant currency adjusted earnings-per-share rise 1% in its most recent quarter (1/27/16). Much of the manufacturing sector is slowing; United Technologies is no exception. The company s management is taking action. United Technologies is undertaking a $1.5 billion restructuring plan that will go through 2018 and provide an estimated $900 million a year in savings. Next Dividend Record Date: Mid February, 2016 Next Earnings Release: Late January, 2016 Competitive Advantage & Recession Performance United Technologies competitive advantage comes from a mix of its size and scale combined with lean manufacturing, technological know-how, and existing contracts and relationships with large government customers. United Technologies performed well through the Great Recession of 2007 to The company saw earnings-per-share fall just 15.9% during the worst of the Great Recession. The company s long-term contracts with military and aerospace customers help to insulate it from recessions. Growth Prospects, Valuation, & Catalyst United Technologies has grown earnings-per-share at around 9% a year over the last decade. When the global economy returns to normal, I expect the company to grow EPS at 8% to 11% per year. United Technologies is expecting adjusted EPS growth of 0% to 5% in The company is targeting $3 billion in share repurchases in 2016, approximately 4% of market cap. In addition, United Technologies has a 3% dividend. Share repurchases, margin improvements, organic growth, and dividends give investors an expected total return of 11% to 14% per year over the long run. Over the last decade (excluding the Great Recession period), United Technologies P/E ratio has averaged around 16. It is currently at Fair value for the company s stock is around $100. The company s stock is currently trading for ~$88 a share. Maximum Drawdown (starting in year 2000): 52.7% in March of 2009 DRIP Available: Yes, with fees Dividend Yield: 2.9% 10 Year EPS Growth Rate: 6.3% per year 10 Year Dividend Growth Rate: 10.3% per year Most Recent Dividend Increase: 8.5% Dividend History: 46 consecutive years without a reduction

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13 13 Abbott Laboratories (ABT) Overview & Current Events Abbott Laboratories is a diversified health care company that manufactures and sells nutrition products, medical devices, diagnostic equipment, and pharmaceuticals. Abbott Laboratories recently announced (2/1/16) it will acquire Alere (ALR) for $5.8 billion. Abbott is acquiring Alere at a P/E ratio of 29. The acquisition will bolster Abbott s diagnostic equipment division and make the company the global leader in point of care testing. Abbott is likely overpaying somewhat for Alere, but the company expects the acquisition to be immediately accretive to EPS. Abbott Laboratories full fiscal 2015 results (1/28/16) showed adjusted EPS of $2.15 for the full year, growth of 8.6% versus the previous year. The company is expecting adjusted EPS of $2.10 to $2.20 in fiscal Excluding issues in Venezuela from the company s currency and negative currency effects from the strong United States dollar, Abbott Laboratories is projecting 10% Adjusted EPS growth. Next Dividend Record Date: Mid-April, 2016 Next Earnings Release: Mid-April, 2016 Competitive Advantage & Recession Performance Abbott Laboratories has invested heavily in emerging markets. The company emphasizes manufacturing its products in the same country in which the products are sold. This reduces currency fluctuation risks and builds connections with communities, companies, and governments. The company also owns many of the most trusted global brands in infant, child, and elderly nutrition. 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. Abbott Laboratories stock fell just 4.95% in 2008 while the S&P 500 declined 38%. Growth Prospects, Valuation, & Catalyst Abbott Laboratories generates 70% of its revenue in international markets. The company has large operations in several key emerging markets. This international exposure gives Abbott excellent longterm growth prospects as it benefits from faster emerging market growth and global aging populations. The company stands to benefit from China s lifting of the one child policy ; this should boost formula sales for Abbott Laboratories over the next several years. Abbott Laboratories is trading at a P/E ratio of The company is likely trading around the low end of fair value given its strong competitive advantage, favorable growth prospects, and shareholder friendly management. Maximum Drawdown (starting in year 2000): -46% in July of 2002 DRIP Available: Yes, no fee but must already be a shareholder Dividend Yield: 2.8% 10 Year EPS Growth Rate: N/A (due to ABBV spin-off) 10 Year Dividend Growth Rate: N/A (due to ABBV spin-off) Most Recent Dividend Increase: 8.3% Dividend History: 44 consecutive years of dividend increases (excludes reductions from ABBV spin-off in 2012) Note: Dividend yield history is skewed due to 2012 spin-off of AbbVie.

14 14 3.5% Computer Services 12 Year Dividend Yield History 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Date 8/19/1997 8/19/1998 8/19/1999 8/17/2000 8/17/2001 8/23/2002 8/25/2003 8/25/2004 8/24/2005 8/24/2006 8/27/2007

15 15 Deere & Company (DE) Overview & Current Events Deere & Company is the world s largest farming equipment manufacturer. The company has large operations in the United States, Brazil, Russia, India, China, and Europe. Deere & Company operates in 3 segments: Agriculture & Turf, Construction & Forestry, and Financial Services. Deere & Company released its fiscal 2015 results on November 25 th. The company saw earnings-pershare decline 33% on the year. The company has done well reducing costs to increase profits during the current down cycle in agricultural prices. Growth slowdowns in emerging markets have also affected the company s profitability. Total earnings were $1.9 billion in earnings are expected to be around $1.4 billion as weakness continues. Despite weakness in the industry, Deere & Company remains a safe long-term investment. The company pays out about $800 million a year in dividends. Even during industry lows, the company expects to make around $1.4 billion in profits in 2016 for a dividend payout ratio of 57%. Next Dividend Record Date: Late March, 2016 Next Earnings Release: Late February, 2016 Competitive Advantage & Recession Performance Deere & Company s competitive advantage comes from its brand recognition and reputation for quality in the farming machinery industry. Deere & Company s competitive advantage has given it a 60% market share of the farming equipment industry in the US and Canada. Recessions and falling grain prices hamper Deere & Company s earnings. The company saw EPS fall from a high of $4.70 in 2008 to a low of $2.82 during the depths of the Great Recession in Deere & Company s earnings are cyclical and depend upon grain prices. Farmers hold off on large capital investments when their cash flows diminish due to low grain prices. Growth Prospects, Valuation, & Catalyst Deere & Company has averaged earnings-per-share growth of 12.8% a year from earnings lows in 2009 to earnings lows in Peak-to-peak (2008 to 2013) earnings-per-share grew at 14.1% a year for the company. When grain prices rise, Deere & Company will see its earnings surge. I expect the company to continue to deliver 10%+ (likely closer to 13%) EPS growth over full economic cycles. This growth combined with the company s current ~3% dividend yield gives Deere & Company investors expected total returns of 13%+. Deere & Company is deeply undervalued. The company s average dividend yield over the last decade is 2%. The company is currently yielding 3.1%. Based on its average dividend yield, Deere & Company s fair value is around $117 a share. The stock is currently trading for $78.42 a share. Maximum Drawdown (starting in year 2000): -73% in March of 2009 DRIP Available: Yes, with fees Dividend Yield: 3.1% 10 Year EPS Growth Rate: 12.8% (used trough-to-trough growth) 10 Year Dividend Growth Rate: 13.3% Most Recent Dividend Increase: No Increase in last 12 months Dividend History: 28 consecutive years without a reduction

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17 17 Becton, Dickinson & Company (BDX) Overview & Current Events BDX is a global producer of medical, diagnostic, and bioscience products. The company was founded in 1897 and now has a market cap of $28.7 billion. BDX saw earnings-per-share grow 28% in its most recent quarter (2/3/16) as the company continues to realize cost synergies from its CareFusion acquisition. BDX also released its full year 2016 outlook. The company is expecting robust EPS growth of around 17% in fiscal 2016 resulting from organic business growth and margin improvements from cost synergies related to the CareFusion acquisition. Next Dividend Record Date: March 3 rd, 2016 Next Earnings Release: Early May, 2016 Competitive Advantage & Recession Performance BDX competitive advantage comes from its global reach, strong supply lines, and well established relationships with customers and governments. New entrants to the medical supplies industry would find it costly and difficult to recreate BDX s global supply chain and relationships with customers. BDX operates in the health care industry which has traditionally done well through recessions. BDX grew revenue, earnings, and dividends from 2007 through 2009, throughout the Great Recession. The company is only minimally affected by economic downturns. Growth Prospects, Valuation, & Catalyst BDX s long-term growth potential comes from rising health care spending as a percentage of GDP across the globe coupled with population growth in emerging markets. BDX currently generates approximately 20% of its revenues in emerging markets this number will likely rise over time. Over the last decade, BDX has compounded earnings-per-share at around 9.7% per year. I expect an earnings-per-share growth rate of 9% to 11% a year over the next decade as the company benefits from cost reductions, margin improvements, and scale advantages from its CareFusion acquisition. This growth combined with the company s current 2% dividend yield gives investors expected total returns of 11% to 13% a year going forward. BDX has a PE ratio of During bull markets, BDX s P/E ratio has averaged around 19. The company is likely trading at or slightly below fair value at current prices. Returns will come from company growth and dividends, not from large valuation multiple change gains. Maximum Drawdown (starting in year 2000): -35% in July of 2002 DRIP Available: Yes Dividend Yield: 2.0% 10 Year EPS Growth Rate: 9.7% per year 10 Year Dividend Growth Rate: 11.6% per year Most Recent Dividend Increase: 10.0% Dividend History: 43 years of consecutive dividend increases

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19 19 Wal-Mart (WMT) Overview & Current Events If Wal-Mart were a country (assuming revenue is about equal to GDP), it would be the 28 th largest in the world based on its annual revenue of $484 billion. Wal-Mart released its 3 rd quarter results on November 17 th. Constant currency revenue grew 2.8% for the company. Comparable store sales in United States Wal-Mart stores grew 1.5%, the 5 th consecutive quarter of increases. Operating income declined 8.8% versus the same quarter a year ago due to wages hikes and investments in digital sales. The company announced (1/15/16) it is closing 269 stores globally which account for less than 1% of total company revenue. The company is closing its small express stores and unprofitable stores in Latin America and the United States. Next Dividend Record Date: Mid March, 2016 Next Earnings Release: Late February, 2016 Competitive Advantage & Recession Performance Wal-Mart s competitive advantage comes from its scale and operating efficiency. Its size allows it to command the best prices from its suppliers. The company pressures suppliers to lower their prices and then passes savings on to consumers, resulting in a positive feedback loop. The Great Recession of 2007 to 2009 did not impede operations. Wal-Mart grew revenue, earnings, and dividends each year through the recession. Wal-Mart is among the most recession-proof publicly traded businesses. When the S&P 500 fell 38% in 2008, Wal-Mart gained 18%. Growth Prospects, Valuation, & Catalyst Wal-Mart s growth will be sluggish (or possibly negative) in the short-term as the company invests heavily in the future. The company s long-term competitive advantage (scale-based low prices) will continue to provide sales and earnings growth over the long run. Investors should expect total returns of 8.3% to 10.3% a year from Wal-Mart. Total returns will come from: 3% to 4% sales growth a year, 2% to 3% share repurchases a year, and a dividend yield of 2.9%. Wal-Mart is currently trading for an adjusted P/E ratio of The company s P/E ratio has averaged about 15.0 over the last decade. Additionally, the company s shares are trading near all time dividend yield highs. Based on its historical dividend yield and price-to-earnings ratio, fair value for Wal-Mart shares is likely between $70 and $80. The stock is currently trading for $67 per share. Maximum Drawdown (starting in year 2000): -37% in October of 2000 (hit 36% in November 2015) DRIP Available: Yes, with fees Dividend Yield: 2.9% 10 Year EPS Growth Rate: 7.6% per year 10 Year Dividend Growth Rate: 12.6% per year Most Recent Dividend Increase: 2.1% Dividend History: 42 Consecutive years of dividend increase

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21 21 Verizon (VZ) Overview & Current Events Verizon is the largest wireless carrier in the United States based on its ~44% market share. Verizon is the 16 th largest corporation (based on market cap of $207 billion) publicly traded in the United States. Verizon posted favorable full year results (1/21/16). The company saw adjusted earnings-per-share grow 19.1% in 2015 versus For the year, EBITDA margins grew 1.3 percentage points to 35.4% and revenue grew 2.6%. Rising margins combined with rising revenue shows that Verizon s competitive advantage is strengthening. Next Dividend Record Date: Early April, 2016 Next Earnings Release: Late April, 2016 Competitive Advantage & Recession Performance Verizon and AT&T together control over 80% of the wireless market in the United States. The telecommunications market has high barriers to entry which inhibit competition due to the large upfront costs of building a network. Additionally, spectrum auctions prohibit competition. Verizon spent $10 billion in the latest spectrum auction (which raised $44 billion total for the US government). Verizon performs well during recessions. The company s wireless network provides a vital service that its customers (in general) do not cut back on even during difficult economic times. Verizon does carry a large debt load of around $1.1 billion, but its consistent stable cash flows make the company s large debt burden sustainable. Growth Prospects, Valuation, & Catalyst I expect Verizon to generate earnings-per-share growth of around 6% a year going forward. The company s wireless service business continues to grow organically. Verizon recently acquired AOL to build a digital and video growth platform centered on mobile users which will be monetized through advertising. Verizon offers investors total returns of around 10.4% a year from its large dividend yield of 4.4% and expected 6% earnings-per-share growth rates. Verizon is currently trading for a price-to-earnings ratio of just The company s average price-toearnings ratio over the last decade is Verizon shares are currently trading for ~$51 a share. Based on its historical average price-to-earnings ratio and current earnings-per-share, Verizon stock should be trading for around $58 a share. Maximum Drawdown (starting in year 2000): -55% in July of 2002 DRIP Available: Yes, with fees Dividend Yield: 4.4% 10 Year EPS Growth Rate: 5.0% 10 Year Dividend Growth Rate: 5.0% Most Recent Dividend Increase: 2.7% Dividend History: 32 consecutive years without a reduction

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23 23 W.W. Grainger Overview & Current Events W.W Grainger is the market leader in the United States maintenance, repair, and operations (abbreviated MRO) supply industry. The company was founded in 1927 and now generates revenues of more than $10 billion a year. W.W. Grainger released full year 2015 results on January 26 th. The company saw adjusted earningsper-share decline 3% on the year due to the following (by affecting W.W. Grainger s customer base): Strong United States dollar, and oil and gas price declines. The company s competitive advantage and market position remains intact, however. The company s 2016 earnings guidance is not particularly helpful management is estimating EPS growth of between -9.5% and 8.9% in fiscal 2016 Next Dividend Record Date: February 8 th, 2016 Next Earnings Release: April 18 th, 2016 Competitive Advantage & Recession Performance W.W. Grainger s competitive advantage comes from its excellent supply chain. The company is the largest company in the fragmented North America MRO. As a result, W.W. Grainger is able to realize economies of scale in its operations a distinct advantage the company has over its smaller competitors. W.W Grainger performed well during the Great Recession of 2007 to The company s earningsper-share fell 14% in 2009 during the worst of the recession but quickly recovered to new all-time highs the following year. I expect a similar recover from current earnings-per-share declines. Growth Prospects, Valuation, & Catalyst W.W. Grainger has compounded EPS at 12.6% a year over the last decade. The company has grown dividends at 17.1% a year over the same time period. W.W. Grainger is expecting 7% to 12% revenue growth over the next 5 years. The company will accomplish this by growing e-commerce operations in Japan, Western Europe, North America, and Great Britain. The company also plans to repurchase ~$1.5 billion in shares over the next 2 years which comes to ~5.5% share count reductions a year. From 2012 through 2014 W.W. Grainger had an average price-to-earnings ratio above 20. The company currently has an adjusted price-to-earnings ratio of Given its excellent growth potential and shareholder friendly management, the company should have a price-to-earnings ratio of at least 20. This implies a fair value of $243 or more. W.W. Grainger stock is currently trading for around $208. Maximum Drawdown (starting in year 2000): -56% in October of 2000 DRIP Available: Not at this time Dividend Yield: 2.2% 10 Year EPS Growth Rate: 12.6% per year 10 Year Dividend Growth Rate: 18.3% per year Most Recent Dividend Increase: 8.3% Dividend History: 44 consecutive years of dividend increases

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25 25 Analysis of International Stocks Only 1 international stock currently ranks in the top 10 using The 8 Rules of Dividend Investing. International stocks are removed from the top 10 list above to simplify investing for U.S. based investors. Weir Group is the only international stock to rank in the Top 10. It would rank #1 overall (ahead of Archer-Daniels-Midland) if it were included in the normal Top 10. Weir Group is based in the United Kingdom. The United Kingdom does not impose a dividend withholding tax on United States investors. This makes holding Weir Group as beneficial as any other United States traded stock. Weir Group is an industrial equipment manufacturer serving the oil & gas, mineral, power, and industrial industries. The company has paid increasing dividends for 25 consecutive years. The company is the global leader in slurry handling and pressure pumping equipment. Weir Group s most relevant stats are listed out below: Name Ticker (Foreign) Growth Rate Dividend Yield P/E Ratio Rank (If in Top 10) Weir Group LON:WEIR 12.5% 5.0% (before CMI) It is rare that a corporation with double-digit historical earnings-per-share growth trades for a price-to-earnings ratio under 10. That is the case with Weir Group at current prices. The company s earnings-per-share are expected to decline approximately 33% on the next quarterly announcement. Even with these declines, Weir Group will still have a low P/E ratio of around 11. The company s payout ratio will likely be around 45% after the company s expected earnings decline when it reports full year 2015 results. Weir Group s dividend is currently safe despite the downturn in mineral and oil gas industries which the company serves.

26 26 List of Stocks by Sector Each of the 180 stocks with 25 or more years of dividend payments without a reduction is sorted by sector below. Stocks are listed in order based on The 8 Rules of Dividend Investing, with the highest ranked first. Dividend yield is included next to each stock s ticker symbol. Basic Materials 1. Phillips 66 (PSX) - 2.9% 2. Valspar Corp. (VAL) - 1.7% 3. PPG Industries Inc. (PPG) - 1.6% 4. Enbridge, Inc. (ENB) - 3.8% 5. Helmerich & Payne Inc. (HP) - 5.5% 6. Sherwin-Williams Co. (SHW) - 1% 7. Phillips 66 Partners LP (PSXP) - 3.1% 8. Air Products & Chem. (APD) - 2.4% 9. RPM International Inc. (RPM) - 2.8% 10. BHP Billiton (BBL) % 11. ExxonMobil Corp. (XOM) - 3.6% 12. Chevron Corp. (CVX) - 5.2% 13. NACCO Industries (NC) - 2.3% 14. H.B. Fuller Company (FUL) - 1.4% 15. National Fuel Gas (NFG) - 3.5% 16. Imperial Oil (IMO) - 1.3% 17. Energen Corp. (EGN) - 0.3% 18. Air Liquide (AI.E) - 2.7% 19. Nucor Corp. (NUE) - 3.8% 20. Murphy Oil (MUR) - 7.1% Technology 1. Verizon Wireless (VZ) - 4.4% 2. Computer Services Inc. (CSVI) - 2.7% 3. BCE, Inc. (BCE) - 5.3% 4. AT&T Inc. (T) - 5.2% 5. Automatic Data Proc. (ADP) - 2.6% 6. Telephone & Data Sys. (TDS) - 2.3% 7. Brady Corp. (BRC) - 3.8% 8. Diebold Inc. (DBD) - 4.3% 9. Vodafone Group plc (VOD) - 5.8% Financial 1. Munich Re (MUV2.B) - 4.5% 2. Franklin Resources (BEN) - 2.1% 3. Waddell & Reed (WDR) - 8.3% 4. Eagle Financial Services (EFSI) - 3.5% 5. AFLAC Inc. (AFL) - 2.8% 6. Eaton Vance Corp. (EV) - 3.7% 7. McGraw Hill Financial Inc. (MHFI) - 1.5% 8. American Express (AXP) - 2.1% 9. T. Rowe Price Group (TROW) - 3% 10. Tompkins Financial Corp. (TMP) - 3.4% 11. Farmers & Merchants Ban. (FMCB) - 2.4% 12. Cincinnati Financial (CINF) - 3.1% 13. Torchmark Insurance (TMK) - 1% 14. Harleysville Savings (HARL) - 4.5% 15. HCP Inc. (HCP) - 6.3% 16. Community Trust Banc. (CTBI) - 3.8% 17. M&T Bank Corporation (MTB) - 2.6% 18. Commerce Bancshares (CBSH) - 2.2% 19. Old Republic International (ORI) - 4.2% 20. 1st Source Corp. (SRCE) - 2.5% 21. First Financial Bankshares (FFIN) - 2.5% 22. First Financial Corp. (THFF) - 3.1% 23. Arthur J Gallagher (AJG) - 3.9% 24. Universal Health Realty Trust (UHT) - 5.2% 25. RLI Corp. (RLI) - 1.3% 26. Northern Trust (NTRS) - 2.4% 27. Realty Income (O) - 4.3% 28. National Retail Properties (NNN) - 4% 29. United Bankshares Inc. (UBSI) - 3.9% 30. Public Storage (PSA) - 2.9% 31. Mercury General Corp. (MCY) - 5.4% 32. Federal Realty Inv. Trust (FRT) - 2.5%

27 27 Consumer Goods 1. Archer Daniels Midland (ADM) - 3.5% 2. Johnson Controls (JCI) - 3.2% 3. General Mills (GIS) - 3.2% 4. Flowers Foods (FLO) - 2.9% 5. Diageo plc (DEO) - 4.1% 6. Procter & Gamble Co. (PG) - 3.3% 7. Church & Dwight (CHD) - 1.5% 8. Coca-Cola Company (KO) - 3.1% 9. VF Corp. (VFC) - 2.5% 10. Altria Group Inc. (MO) - 3.8% 11. Carlisle Companies (CSL) - 1.4% 12. PepsiCo Inc. (PEP) - 2.9% 13. Philip Morris (PM) - 4.6% 14. Mondelez (MDLZ) - 1.8% 15. Ecolab, Inc. (ECL) - 1.3% 16. Kerry Group (KYGA.L) - 0.5% 17. Home Depot (HD) - 2% 18. Hormel Foods Corp. (HRL) - 1.5% 19. Nike (NKE) - 1.1% 20. Kellogg (K) - 2.8% 21. The J.M. Smucker Co. (SJM) - 2.1% 22. Universal Corp. (UVV) - 3.9% 23. McCormick & Co. (MKC) - 2% 24. PZ Cussons plc (PZC.L) - 2.9% 25. Nestle (NESN.V) - 3% 26. Colgate-Palmolive Co. (CL) - 2.3% 27. Brown-Forman Class B (BF-B) - 1.5% 28. Kimberly-Clark Corp. (KMB) - 2.7% 29. Clorox Company (CLX) - 2.5% 30. Cranswick plc (CWK.L) - 1.8% 31. Young & Co's Brewery (YNGA.L) - 1.5% 32. Sonoco Products Co. (SON) - 3.5% 33. Lowe's Companies (LOW) - 1.7% 34. Bemis Company (BMS) - 2.3% 35. Stepan Company (SCL) - 1.7% 36. Unilever (UL) - 3% 37. Leggett & Platt Inc. (LEG) - 3.1% 38. Hershey (HSY) - 2.7% 39. Weyco Group Inc. (WEYS) - 3.3% 40. Lancaster Colony Corp. (LANC) - 2.1% 41. HNI Corp (HNI) - 3.4% 42. L'Oreal (OR.E) - 1.8% 43. Tootsie Roll Industries (TR) - 1.2% 44. Kraft-Heinz Company (KHC) - 3.2% 45. Henkel (HEN3.E) - 1.4% Utilities 1. Fortis (FTS.TO) - 3.6% 2. Canadian Utilities (CU.TO) - 3.3% 3. Consolidated Edison (ED) - 3.7% 4. Southern Company (SO) - 4.5% 5. California Water Service (CWT) - 2.8% 6. SCANA Corp. (SCG) - 3.4% 7. Northwest Natural Gas (NWN) - 3.6% 8. UGI Corp. (UGI) - 2.5% 9. Vectren Corp. (VVC) - 3.6% 10. Black Hills Corp. (BKH) - 3.2% 11. American States Water (AWR) - 2% 12. Questar Corp. (STR) - 3.4% 13. Conn. Water Service (CTWS) - 2.6% 14. WGL Holdings Inc. (WGL) - 2.8% 15. Middlesex Water Co. (MSEX) - 2.9% 16. Atmos Energy (ATO) - 2.4% 17. MGE Energy (MGEE) - 2.4% 18. Otter Tail (OTTR) - 4.3% 19. Piedmont Natural Gas (PNY) - 2.2% 20. SJW Corp. (SJW) - 2.4%

28 28 Industrial Goods 1. Weir Group plc (WEIR.L) - 5% 2. Cummins (CMI) - 3.9% 3. United Technologies (UTX) - 2.9% 4. Deere & Co. (DE) - 3.1% 5. Pentair Ltd. (PNR) - 2.9% 6. Parker-Hannifin Corp. (PH) - 2.5% 7. Emerson Electric (EMR) - 4.1% 8. Caterpillar (CAT) - 4.7% 9. 3M Company (MMM) - 2.7% 10. Illinois Tool Works (ITW) - 2.4% 11. Nordson Corp. (NDSN) - 1.6% 12. Spirax-Sarco Engineering (SPX.L) - 2.3% 13. Eaton (ETN) - 4% 14. Stanley Black & Decker (SWK) - 2.4% 15. General Dynamics (GD) - 2.1% 16. Tennant Company (TNC) - 1.5% 17. Clarcor Inc. (CLC) - 1.9% 18. Dover Corp. (DOV) - 2.8% 19. Cobham plc (COB.L) - 4.6% 20. Spectris Group plc (SXS.L) - 2.3% 21. Donaldson Company (DCI) - 2.3% 22. Rotork plc (ROR.L) - 0.3% 23. Gorman-Rupp Company (GRC) - 1.8% 24. Raven Industries (RAVN) - 3.5% Services 1. Wal-Mart Stores Inc. (WMT) - 2.9% 2. W.W. Grainger Inc. (GWW) - 2.2% 3. Disney (DIS) - 1.5% 4. Walgreens Boots Alliance (WBA) - 1.9% 5. Target Corp. (TGT) - 3.2% 6. Genuine Parts Co. (GPC) - 2.9% 7. Empire Co. (EMP.A.TO) - 1.6% 8. United Parcel Service (UPS) - 3.1% 9. Cardinal Health (CAH) - 2% 10. McDonald's Corp. (MCD) - 3.1% 11. RR Donnelley (RRD) - 7.7% 12. Sysco Corp. (SYY) - 2.9% 13. ABM Industries Inc. (ABM) - 2.3% 14. Mine Safety Appliances (MSA) - 3.1% 15. Cintas Corp. (CTAS) - 1.3% 16. Wolters Kluwer NV (WKL.A) - 2.4% 17. Bowl America (BWL.A) - 4.7% Health Care 1. Abbott Laboratories (ABT) - 2.8% 2. Becton Dickinson & Co. (BDX) - 2% 3. AbbVie (ABBV) - 4.3% 4. Johnson & Johnson (JNJ) - 3% 5. C.R. Bard Inc. (BCR) - 0.5% 6. Medtronic Inc. (MDT) - 2% 7. United Health Group (UNH) - 1.8% 8. Novo Nordisk (NVO) - 1.5% 9. Merck & Co. (MRK) - 3.7% 10. Baxalta (BXLT) - 0.7% 11. Baxter International (BAX) - 1.2% 12. Roche (ROG.V) - 3.2% 13. Eli Lilly & Company (LLY) - 2.7%

29 29 List of Stocks by Rank Each of the 180 stocks with 25 or more years of dividend payments without a reduction is listed below. Stocks are listed in order based on The 8 Rules of Dividend Investing, with the highest ranked first. The Score of each stock is listed as well. The top ranked stock has a score of 1. The closer to 1, the better. 1. Weir Group plc (WEIR.L) Church & Dwight (CHD) Archer-Daniels-Midl. (ADM) Coca-Cola Company (KO) Johnson Controls (JCI) BCE, Inc. (BCE) Cummins (CMI) VF Corp. (VFC) United Technologies (UTX) Target Corp. (TGT) Abbott Laboratories (ABT) AT&T Inc. (T) Deere & Co. (DE) Altria Group Inc. (MO) Becton Dickinson (BDX) Carlisle Companies (CSL) Wal-Mart Stores Inc. (WMT) Eagle Financial Services (EFSI) Verizon Wireless (VZ) W.W. Grainger Inc. (GWW) General Mills (GIS) Pentair Ltd. (PNR) Munich Re (MUV2.B) AbbVie (ABBV) Disney (DIS) Phillips 66 (PSX) Flowers Foods (FLO) Fortis (FTS.TO) Johnson & Johnson (JNJ) Valspar Corp. (VAL) Diageo plc (DEO) Franklin Resources (BEN) Parker-Hannifin Corp. (PH) PPG Industries Inc. (PPG) Canadian Utilities (CU.TO) Waddell & Reed (WDR) Emerson Electric (EMR) Medtronic Inc. (MDT) PepsiCo Inc. (PEP) Enbridge, Inc. (ENB) Philip Morris (PM) United Health Group (UNH) Mondelez (MDLZ) Ecolab, Inc. (ECL) M Company (MMM) AFLAC Inc. (AFL) Illinois Tool Works (ITW) Helmerich & Payne Inc. (HP) Nordson Corp. (NDSN) Eaton Vance Corp. (EV) Spirax-Sarco Enginee. (SPX.L) Novo Nordisk (NVO) Eaton (ETN) Genuine Parts Co. (GPC) Kerry Group (KYGA.L) Home Depot (HD) Walgreens Boots Allia. (WBA) Stanley Black & Deck. (SWK) Caterpillar (CAT) Procter & Gamble Co. (PG) Hormel Foods Corp. (HRL) General Dynamics (GD) Computer Services Inc. (CSVI) Empire Co. (EMP.A.TO) C.R. Bard Inc. (BCR) Nike (NKE) This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

30 Sherwin-Williams Co. (SHW) McGraw Hill Financial (MHFI) American Express (AXP) United Parcel Service (UPS) Cardinal Health (CAH) Tennant Company (TNC) Consolidated Edison (ED) Clarcor Inc. (CLC) Dover Corp. (DOV) T. Rowe Price Group (TROW) Merck & Co. (MRK) Tompkins Financial (TMP) Kellogg (K) Farmers & Merchants (FMCB) Cincinnati Financial (CINF) The J.M. Smucker Co. (SJM) Southern Company (SO) California Water Servi. (CWT) Phillips 66 Partners LP (PSXP) Universal Corp. (UVV) McCormick & Co. (MKC) Baxalta (BXLT) Torchmark Insurance (TMK) PZ Cussons plc (PZC.L) McDonald's Corp. (MCD) Harleysville Savings (HARL) Cobham plc (COB.L) SCANA Corp. (SCG) RR Donnelley (RRD) Spectris Group plc (SXS.L) Northwest Natural Gas (NWN) Nestle (NESN.V) HCP Inc. (HCP) Air Products & Chem. (APD) Community Trust Ban. (CTBI) RPM International Inc. (RPM) M&T Bank Corporation (MTB) Colgate-Palmolive Co. (CL) Sysco Corp. (SYY) Brown-Forman Class B (BF-B) Baxter International (BAX) Kimberly-Clark Corp. (KMB) Commerce Bancshares (CBSH) Clorox Company (CLX) BHP Billiton (BBL) UGI Corp. (UGI) ExxonMobil Corp. (XOM) Cranswick plc (CWK.L) ABM Industries Inc. (ABM) Mine Safety Appliances (MSA) Young & Co's Bre. (YNGA.L) Roche (ROG.V) Sonoco Products Co. (SON) Old Republic Internati. (ORI) Donaldson Company (DCI) Lowe's Companies (LOW) Vectren Corp. (VVC) Chevron Corp. (CVX) st Source Corp. (SRCE) Black Hills Corp. (BKH) First Financial Banksh. (FFIN) Cintas Corp. (CTAS) Bemis Company (BMS) Stepan Company (SCL) Automatic Data Proc. (ADP) Unilever (UL) Rotork plc (ROR.L) First Financial Corp. (THFF) Eli Lilly & Company (LLY) Leggett & Platt Inc. (LEG) Hershey (HSY) Telephone & Data Sys. (TDS) NACCO Industries (NC) Weyco Group Inc. (WEYS) American States Water (AWR) H.B. Fuller Company (FUL) Questar Corp. (STR) Conn. Water Service (CTWS) Lancaster Colony (LANC) National Fuel Gas (NFG) Arthur J Gallagher (AJG) HNI Corp (HNI) This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

31 Universal Health Realty (UHT) Imperial Oil (IMO) Brady Corp. (BRC) Energen Corp. (EGN) WGL Holdings Inc. (WGL) Air Liquide (AI.E) RLI Corp. (RLI) Henkel (HEN3.E) Middlesex Water Co. (MSEX) United Bankshares Inc. (UBSI) L'Oreal (OR.E) Bowl America (BWL.A) Tootsie Roll Industries (TR) Public Storage (PSA) Wolters Kluwer NV (WKL.A) Mercury General Corp. (MCY) Northern Trust (NTRS) Nucor Corp. (NUE) Realty Income (O) Gorman-Rupp Comp. (GRC) Kraft-Heinz Company (KHC) Piedmont Natural Gas (PNY) Diebold Inc. (DBD) SJW Corp. (SJW) Atmos Energy (ATO) Federal Realty Inv. Trust (FRT) National Retail Propert. (NNN) Raven Industries (RAVN) Vodafone Group plc (VOD) Murphy Oil (MUR) MGE Energy (MGEE) Otter Tail (OTTR) This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

32 32 Portfolio Building Guide The process of building a high quality dividend growth portfolio is not complicated: 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 ADM Archer Daniels Midland $ 1,002 ADM Archer Daniels Midland $ 4,374 JCI Johnson Controls $ - JCI Johnson Controls $ 4,878 CMI Cummins $ - CMI Cummins $ 4,353 UTX United Technologies $ - UTX United Technologies $ 2,952 ABT Abbott Laboratories $ - ABT Abbott Laboratories $ 3,309 DE Deere & Co. $ - DE Deere & Co. $ 4,864 BDX Becton Dickinson & Co. $ - BDX Becton Dickinson & Co. $ 6,660 WMT Wal-Mart Stores Inc. $ - WMT Wal-Mart Stores Inc. $ 2,367 VZ Verizon Wireless $ - VZ Verizon Wireless $ 2,818 GWW W.W. Grainger Inc. $ - GWW W.W. Grainger Inc. $ 6,243 - If you had portfolio 1, you would buy JCI, the top ranked stock you own least. - If you had portfolio 2, you would buy WMT, the top ranked stock you own least. If you have an existing portfolio or a large lump sum to invest, 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.

33 33 List of Past Recommendations The stocks below are all of the previous recommendations of Sure Dividend that are no longer in the top 10 using The 8 Rules of Dividend Investing. The date each stock was first recommended is also shown below. Name Current Rank Status 1 st Rec. Date Sell Date Clorox (CLX) 110 Hold April 2014 N/A Target (TGT) 38 Hold April 2014 N/A Kimb.-Clark (KMB) 108 Hold April 2014 N/A ExxonMobil (XOM) 113 Hold April 2014 N/A AFLAC (AFL) 51 Hold April 2014 N/A PepsiCo (PEP) 44 Hold April 2014 N/A McDonald s (MCD) 91 Hold April 2014 N/A Coca-Cola (KO) 35 Hold April 2014 N/A Genuine Parts (GPC) 59 Hold May 2014 N/A 3M (MMM) 50 Hold May 2014 N/A AT&T (T) 39 Hold June 2014 N/A Philip Morris (PM) 46 Hold June 2014 N/A General Mills (GIS) 12 Hold June 2014 N/A J.M. Smucker (SJM) 82 Hold August 2014 N/A EcoLab (ECL) 49 Hold October 2014 N/A Kellogg (K) 79 Hold December 2014 N/A Helmerich & Payne (HP) 53 Hold February 2015 N/A Altria (MO) 40 Hold April 2015 N/A BCE, Inc. (BCE) 36 Hold August 2015 N/A Caterpillar (CAT) 30 Hold August 2015 N/A Eaton (ETN) 58 Hold September 2015 N/A Johnson & Johnson (JNJ) 20 Hold November 2015 N/A Computer Servic, (CSVI) 32 Hold November 2015 N/A Procter & Gamble (PG) 31 Hold December 2015 N/A Chubb (CB) N/A Sold April 2014 July 2015 Baxalta (BXLT) N/A Sell July 2015 Feb ConocoPhillips (COP) N/A To Be Sold December 2014 On Oil Rise This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.