Sure Dividend HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN

Transcription

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

2 Table of Contents Opening Thoughts... 3 The Top 10 List... 4 Review of November s Top 10 Stocks... 5 PepsiCo (PEP)... 5 Wal-Mart (WMT)... 6 General Mills (GIS)... 7 McDonald s (MCD)... 8 Coca-Cola (KO)... 9 Becton Dickinson (BDX) Philip Morris International (PM) ExxonMobil (XOM) J.M. Smucker (SJM) Abbott Laboratories (ABT) List of Stocks by Segment Portfolio Building Guide Examples List of Past Recommendations Ending Thoughts... 20

3 Page 3 Opening Thoughts The S&P500 was up about 3.5% this month. It was an even better month for high quality businesses as both the S&P Low Volatility index and Dividend Aristocrats index outperformed the S&P500. Several Sure Dividend stocks saw strong performance as well. BDX was up over 13% on news the company will acquire competitor CareFusion (CFN). Past recommendations Chubb (CB) and Genuine Parts Company (GPC) were up 9% and 11%, respectively on solid third quarter earnings news. Not all news was positive. McDonald s (MCD) stock continues to suffer as the company reported declining comparable store sales in its most recent quarter. The company has plans to better control its advertising message and simplify its menu, which are two changes I believe will help the company return to growth. The Federal Reserve announced it was ending its quantitative easing program this month. The Federal Reserve is still targeting a federal funds rate of 0% to 0.25% which will keep interest rates extremely low. There has been much debate between economists over when rates will rise, with most expecting increasing interest rates in As interest rates rise, the value of real assets (stocks, houses, commodities) will fall, all other things being equal. The federal reserve s move to end quantitative easing is the first step in cutting artificial boosts to the economy. When the Federal Reserve raises its federal funds rate, we may see a decline in stock prices. The November edition of the Sure Dividend includes many household name stocks for dividend growth investors. I continue to be shocked at how cheap McDonald s, Wal-Mart, and ExxonMobil remain. They are all high quality businesses and industry leaders trading at fair or better prices. 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 PEP PepsiCo Inc. 3.04% 56.52% 10.74% 17.39% WMT Wal-Mart Stores Inc. 2.52% 38.04% 8.17% 19.14% GIS General Mills 3.16% 57.98% 6.76% 17.02% MCD McDonald s Corp. 3.63% 60.20% 6.98% 20.14% KO Coca-Cola Company 2.91% 63.31% 9.04% 18.71% BDX Becton, Dickinson & Co. 1.69% 33.05% 8.03% 20.23% PM Philip Morris Int l. 4.49% 75.34% 8.63% 24.05% XOM ExxonMobil Corp. 2.85% 37.16% 6.20% 25.33% SJM The J.M. Smucker Co. 2.46% 42.30% 6.25% 21.26% ABT Abbott Laboratories 2.02% 41.54% 6.50% 19.84% PepsiCo tops the rankings for the first time. The company s recent strong results boosted its growth rate, moving it ahead of Wal-Mart in the rankings. Wal-Mart, General Mills, McDonald s, and Coca-Cola continue to be favorites of the Sure Dividend system. J.M. Smucker replaced Ecolab this month. J.M. Smucker has solid scores across all metrics, with none standing out in particular. The company joins PepsiCo, Coca- Cola, and General Mills as the other branded food companies in the Top 10. Changes occur only when companies release new financial data, or when stock prices change and reduce dividend yields. While not as exciting as a top 10 list that is constantly changing, the stability of the 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: 2.88% 1.84% Payout Ratio: 50.54% 35.97% Growth Rate: 7.73% 7.43% Volatility: 14.20% 20.34% PE Ratio: P/E is calculated as the current price divided by trailing-twelve month earnings from Value Line; 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 November s Top 10 Stocks 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 December, 2014 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. The company is entrenched in consumer minds throughout the world. 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 20, which is close to its historical average. The company is slightly more expensive than the overall market, but is of a substantially higher quality than the average publicly traded stock. PepsiCo has had double-digit revenue and dividend growth over the last ten years and has positioned itself well to take advantage of growth in the developing world through strong branding. Maximum Drawdown (starting in year 2000): -40% in March of 2009 Dividend Stats Dividend Yield: 3.04% 10 Year Dividend Growth Rate: 11.00% per year Most Recent Dividend Increase: 15.32% Dividend History: 42 Consecutive years of dividend increases

6 Page 6 Wal-Mart (WMT) Overview & Current Events Wal-Mart is the largest retailer in the world, with over $480 billion in annual sales. The company employees 2.2 million people, making it the world s largest employer. In mid-october, Wal-Mart announced its growth plans for next year. The company is investing heavily in e-commerce and trimming its US store growth investments. 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: December 5 th, 2014 Next Earnings Release: November 13 th, 2014 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 for Wal-Mart. Wal-Mart is attempting to leverage its strong distribution network to provide online shoppers with convenient in-store pick up options. 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. The company is currently trading at a P/E ratio of about 15, well below the market s P/E ratio of 19. 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 28), Target (P/E of 21) and Dollar General (P/E of 19). The company will likely see its valuation multiples increase when comparable store sales in the US begin increasing again. Maximum Drawdown (starting in year 2000): -37% in October of 2000 Dividend Stats Dividend Yield: 2.52% 10 Year Dividend Growth Rate: 14.00% per year Most Recent Dividend Increase: 2.13% Dividend History: 41 Consecutive years of dividend increases

7 Page 7 General Mills (GIS) Overview & Current Events General Mills has not reduced its dividend payments in 116 years. The company s stability comes from its portfolio of consumer food brands which includes: Cheerios, Nature Valley, Lucky Charms, Yoplait, Hidden Valley, and Progresso (among others). General Mills recently announced plans to acquire the natural food company Annie s. The deal will boost General Mill s natural and organic products revenues from $330 million to $540 million. General Mills saw constant-currency revenue decline 1% for its most recent earnings release (9/17/14). The company s guidance for fiscal 2015 shows General Mills is expecting 7% to 9% constant currency EPS growth to go along with its 3%+ yield for a double-digit total return. Next Dividend Record Date: Mid January, 2015 Next Earnings Release: Mid December, 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 has the following plans to return its US operations to growth: Renovating its flagship cereal brands and yogurt brands Capitalizing on increasing Hispanic brand sales Focusing on better-for-you snacking through its LARA, Nature Valley, and Fiber One brands 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: 3.16% 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 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. The company serves a variety of low-cost burgers and sides through its 35,000+ locations around the world. McDonald s latest earnings release (10/21/14) was negative. Comparable store sales in Asia-Pacific, the Middle East, and Africa dropped 14% due to McDonald s Chinese meat supplier selling tainted meat. The company also saw US comparable store sales drop 2.7% on negative publicity from the living wage debate and strong competition. McDonald s management has plans to return the US to growth. The company is switching to a simplified menu and revamping its marketing approach to focus on food quality, brand transparency, and people initiatives. 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. The company s golden arches are recognized throughout the world. McDonald s franchising model allows it to grow quickly and realize higher return on assets than a store-owned business model. The company generates significant cash flows which it uses to repurchase shares, pay dividends, and invest in new franchise locations. 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 tend to do well in recessions as consumers switch from more expensive restaurants to cheaper options. Growth Prospects, Valuation, & Catalyst McDonald s long-term growth prospects are more favorable than negative current events indicate. The company has plans to return the US to growth by simplifying its menu and better controlling its public image. The tainted meat situation in China is a one-time event McDonald s will recover from in time. The company currently trades at a P/E ratio of about 17. The median P/E ratio for mid and large cap restaurant companies is around McDonald s has significant upside potential that will likely be realized when the company returns to positive comparable store sales growth in the US. Maximum Drawdown (starting in year 2000): -70% in March of 2003 Dividend Stats Dividend Yield: 3.63% 10 Year Dividend Growth Rate: 19.40% per year Most Recent Dividend Increase: 5.00% Dividend History: 38 consecutive years of dividend increases

9 Page 9 Coca-Cola (KO) Overview & Current Events Coca-Cola is the world s leading carbonated beverage company based on sales and market cap. Coca- Cola has 17 brands that sell over $1 billion annually including its flagship Coca-Cola, Sprite, and Fanta. The company boasts a strong non-carbonated brand portfolio as well including: Simply, Minute Made, Vitamin Water, Dasani, and Powerade. 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 grew beverage volume over the following geographies: - Eurasia & Africa: 4% increase - Europe: 5% decrease - Latin America: 1% increase - North America: 1% decrease - Asia Pacific: 2% increase Next Dividend Record Date: Mid December, 2014 Next Earnings Release: Late January, 2015 Competitive Advantage & Recession Performance Coca-Cola s competitive advantage comes from its highly recognizable brands. Coca-Cola s brands and image are supported by strong advertising campaigns. The share a coke campaign has been a very successful by appealing to individual customer s names. Coca-Cola was minimally affected by the Great Recession of 2007 to The company s earnings per share dipped slightly 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 emerging 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 with both Green Mountain Coffee Roasters (Keurig maker) and Monster Beverage to continue growing the business. Coca-Cola trades at a P/E ratio of about 21 which is slightly above its 10 year historical average. The company is currently sitting at the high end of its fair valuation. 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: 2.91% 10 Year Dividend Growth Rate: 9.33% per year Most Recent Dividend Increase: 8.93% Dividend History: 52 consecutive years of dividend increases

10 Page 10 Becton Dickinson (BDX) Overview & Current Events BDX is a global producer of medical, diagnostic, and bioscience products. The company was founded in 1897 and has paid increasing dividends for 42 consecutive years. The company has taken bold steps recently to build a foundation for future growth. On October 5 th, BDX announced it would acquire competing medical instrument and supply company CareFusion for $12 billion. The deal will grow BDX revenues by about 50%. BDX expects to leverage its global distribution network in conjunction with CareFusion s product portfolio to realize significant sales growth. On October 13 th, BDX announced a second acquisition. The company will acquire GenCell Biosystems. GenCell has developed proprietary technologies for the preparation of genotype sequencing. The acquisition positions BDX for future growth and will not be immediately accretive to earnings. Next Dividend Record Date: Early December, 2014 Next Earnings Release: November 4 th, 2014 Competitive Advantage & Recession Performance The company s competitive advantage comes from its existing contacts and distribution network in the global health care industry coupled with its excellent new product pipeline. BDX currently generates about 60% of its revenues internationally, and is growing revenue fastest in developing markets. 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 recent acquisitions will further fuel the company s growth. BDX is a truly international business with 60% of revenues coming outside the US. The company is benefitting from an aging global population (which requires additional health care) and growth in developing nations where health care spending is increasing. BDX has a PE ratio of about 19, in line with the S&P500 s PE ratio. BDX is a high quality business with a strong competitive advantage and excellent long-term growth prospects. As a result, I believe the company should trade at a 1.2x premium to the S&P500 s PE ratio. Maximum Drawdown (starting in year 2000): -35% in July of 2002 Dividend Stats Dividend Yield: 1.69% 10 Year Dividend Growth Rate: 11.72% per year Most Recent Dividend Increase: 10.10% Dividend History: 42 consecutive years of dividend increases

11 Page 11 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 best 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. 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 parent 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: 4.49% 10 Year Dividend Growth Rate: 10.82% for past 5 years, per year (10 year data not available) Most Recent Dividend Increase: 6.40% Dividend History: 31 consecutive years of dividend increases (Counting Altria history before spin-off)

12 Page 12 ExxonMobil (XOM) Overview & Current Events ExxonMobil is the world s largest publicly traded oil company, and 2 nd largest publicly traded corporation overall with a market cap of $403 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 record for most profits in a year by a 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. Next Dividend Record Date: January 12 th, 2014 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 is affected by recessions. 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. 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 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. Maximum Drawdown (starting in year 2000): -37% in July of 2010 Dividend Stats Dividend Yield: 2.85% 10 Year Dividend Growth Rate: 9.84% per year Most Recent Dividend Increase: 9.52% Dividend History: 32 consecutive years of dividend increases

13 Page 13 J.M. Smucker (SJM) Overview & Current Events J.M. Smucker sells food products under the following brands: Folger s coffee, Jif peanut butter, Smucker s jams and jellies, R.W. Knudsen juice, and Crisco shortening, among others. J.M. Smucker is the US industry leader in retail coffee, peanut butter, fruit spreads, natural beverages, shortening, sweetened condensed milk, and ice cream toppings. J.M. Smucker saw EPS increase 11% for its 1 st quarter fiscal 2015 earnings release versus the same quarter a year ago. The company is seeing solid growth in acquired coffee brand Café Bustelo. J.M. Smucker saw volume gains in Folger s coffee on the quarter as it experimented with lower pricing for its Folger s coffee brand; volume increases did not offset lower prices and revenue declined. The company responded by increasing Folger s prices 9% late in its first quarter; the move will likely return the Folger s brand to revenue growth. Next Dividend Record Date: November 14 th, 2014 Next Earnings Release: November 19 th, 2014 Competitive Advantage & Recession Performance J.M. Smucker s competitive advantage comes from its portfolio of high quality US food brands. The company controls the top peanut butter and retail coffee brands in the US. JM Smucker advertises over a wide range of mediums to support its brands images. The company is highly resistant to recessions. EPS increased each year through the great recession of 2007 to J.M. Smucker does well during recessions because it sells branded consumer food products that consumers do not cut back on in times of economic hardship. Growth Prospects, Valuation, & Catalyst J.M. Smucker s future growth will come from organic growth in its strong brands, acquisitions, and innovative new products. The company s recently acquired Café Bustelo coffee brand has grown quickly, as has its innovative Smucker s Uncrustable pre-made sandwich line. The company has traded in line with the PE ratio of the S&P500 in recent years. J.M. Smucker appears to be undervalued at this time as it is trading at a PE ratio of 17, while the market is trading at PE ratio of 19. A potential catalyst for J.M. Smucker is returning its important Folger s coffee brand to growth. Maximum Drawdown (starting in year 2000): -38% in March of 2009 Dividend Stats Dividend Yield: 2.46% 10 Year Dividend Growth Rate: 9.77% Most Recent Dividend Increase: 10.34% Dividend History: J.M. Smucker has not reduced its dividend since 1949

14 Page 14 Abbott Laboratories (ABT) Overview & Current Events Abbott Laboratories designs and produces nutritional products, medical devices, pharmaceuticals, and diagnostic equipment. The $64 billion health care giant has positioned itself to take advantage of emerging market growth with 40% of sales coming from emerging markets, 30% from the US, and 30% 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 Latin American pharmaceuticals. In July of this year, Abbott announced plans to sell off its developed market pharmaceuticals to Mylan (MYL). These two moves position Abbott s pharmaceutical segment entirely in emerging markets, and out of developed markets. Next Dividend Record Date: Mid January, 2015 Next Earnings Release: Mid January, 2015 Competitive Advantage & Recession Performance Abbott Laboratories competitive advantage comes from its supply chain and experience in selling health care products in developing markets. Abbott Laboratories also has strong brands like Pedialyte and Similac which add to its competitive advantage. The company managed to grow revenue, earnings, and dividends each year through the Great Recession of 2007 to Health care is one of the few areas that consumers and governments do not cut back on, even in times of economic trouble. Growth Prospects, Valuation, & Catalyst Abbott Laboratories strong 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. Abbott Laboratories is trading at a P/E ratio of about 20 (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: 2.02% 10 Year Dividend Growth Rate: 5.84% Most Recent Dividend Increase: 57.14% Dividend History: 42 consecutive years of dividend increases

15 Page 15 List of Stocks by Segment Each of the 132 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 investing first, and the lowest ranked last. Basic Materials 1. ExxonMobil (XOM) 2. Enbridge (ENB) 3. Sigma-Aldrich (SIAL) 4. Valspar (VAL) 5. Sherwin-Williams (SHW) 6. Imperial Oil (IMO) 7. Helmerich & Payne (HP) 8. ConocoPhillips (COP) 9. PPG Industries (PPG) 10. Chevron (CVX) 11. HB Fuller (FUL) 12. RPM International (RPM) 13. Air Products & Chem. (APD) 14. National Fuel Gas (NFG) 15. Energen (EGN) 16. Nucor (NUE) 17. NACCO Industries (NC) Consumer Goods 1. PepsiCo (PEP) 2. General Mills (GIS) 3. Coca-Cola (KO) 4. Philip Morris International (PM) 5. J.M. Smucker (SJM) 6. Kimberly-Clark (KMB) 7. Hormel Foods (HRL) 8. Ecolab (ECL) 9. McCormick & Company (MKC) 10. Clorox (CLX) 11. Altria (MO) 12. Colgate-Palmolive (CL) 13. Procter & Gamble (PG) 14. V.F. Corporation (VFC) 15. Hershey (HSY) 16. Mondelez (MDLZ) 17. Archer-Daniels-Midland (ADM) 18. Universal Corporation (UVV) 19. Bemis Company (BMS) 20. Kraft (KRFT) 21. Brown-Forman (BF-B) 22. Sonoco Products (SON) 23. Tootsie Roll Industries (TR) 24. Carlisle Companies (CSL) 25. Weyco Group (WEYS) 26. Lancaster Colony (LANC) 27. Stepan Company (SCL) 28. Johnson Controls (JCI) 29. Leggett & Platt (LEG) 30. Nestle (NESN) 31. HNI Corporation (HNI)

16 Page 16 Financial 1. Chubb (CB) 2. AFLAC (AFL) 3. Commerce Bankshares (CBSH) 4. Tompkins Financial (TMP) 5. T. Rowe Price Group (TROW) 6. McGraw Hill Financial (MHFI) 7. Franklin Resources (BEN) 8. RLI Corporation (RLI) 9. Arthur J Gallagher & Co (AJG) 10. Eaton Vance (EV) 11. Community Trust (CTBI) 12. First Financial Bank (FFIN) 13. Eagle Financial Services (EFSI) 14. Universal Health Realty (UHT) st Source Corporation (SRCE) 16. Mercury General (MCY) 17. Northern Trust (NTRS) 18. First Financial Corp. (THFF) 19. Cincinnati Financial (CINF) 20. Harleysville Savings (HARL) 21. United Bankshares (UBSI) 22. HCP, Inc. (HCP) 23. Old Republic Int l (ORI) 24. Federal Realty Trust (FRT) Health Care 1. Becton, Dickinson & Co. (BDX) 2. Abbott Laboratories (ABT) 3. CR Bard (BCR) 4. Medtronic (MDT) 5. Johnson & Johnson (JNJ) 6. AbbVie (ABBV) Industrial Goods 1. Industrial Goods (MMM) 2. Pentair (PNR) 3. United Technologies (UTX) 4. Dover Corporation (DOV) 5. Parker-Hannifin (PH) 6. Nordson Corporation (NDSN) 7. Illinois Tool Works (ITW) 8. Stanley Black & Decker (SWK) 9. Donaldson Company (DCI) 10. Emerson Electric (EMR) 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. Genuine Parts Company (GPC) 6. Cintas Corporation (CTAS) 7. Family Dollar Stores (FDO) 8. Target (TGT) 9. Lowe s Companies (LOW) 10. Sysco Corporation (SYY) 11. Empire Company (EMP-A.TO) 12. ABM Industries (ABM) 13. Cardinal Health (CAH) 14. Bowl America (BWL-A) 15. MSA Safety (MSA)

17 Page 17 Technology 1. AT&T (T) 2. Auto. Data Processing (ADP) 3. BCE Inc. (BCE) 4. Computer Services Inc. (CSVI) 5. Brady Corporation (BRC) 6. Diebold Incorporated (DBD) 7. Telephone & Data Syst. (TDS) Utilities 1. Consolidated Edison (ED) 2. Fortis (FTS.TO) 3. American States Water (AWR) 4. UGI Corporation (UGI) 5. Vectren Corporation (VVC) 6. Canadian Utilities (CU.TO) 7. Atmos Energy (ATO) 8. MGE Energy (MGEE) 9. WGL Holdings (WGL) 10. Black Hills Corporation (BKH) 11. Northwest Natural Gas (NWN) 12. Piedmont Natural Gas (PNY) 13. Connecticut Water (CTWS) 14. Middlesex Water (MSEX) 15. Questar Corporation (STR) 16. Otter Tail (OTTR) 17. California Water Service (CWT) 18. SJW Corporation (SJW)

18 Page 18 Portfolio Building Guide 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 PEP PepsiCo Inc. $ 1,002 PEP PepsiCo Inc. $ 4,374 WMT Wal-Mart Stores Inc. $ - WMT Wal-Mart Stores Inc. $ 4,878 GIS General Mills $ - GIS General Mills $ 4,353 MCD McDonald s Corp. $ - MCD McDonald s Corp. $ 2,952 KO Coca-Cola Company $ - KO Coca-Cola Company $ 3,309 BDX Becton, Dickinson & Co. $ - BDX Becton, Dickinson & Co. $ 4,864 PM Philip Morris Int l. $ - PM Philip Morris Int l. $ 6,660 XOM ExxonMobil Corp. $ - XOM ExxonMobil Corp. $ 2,367 SJM The J.M. Smucker Co. $ - SJM The J.M. Smucker Co. $ 2,818 ABT Abbott Laboratories $ - ABT Abbott Laboratories $ 6,243 If you had portfolio 1, you would buy Wal-Mart, the top ranked stock you own least. If you had portfolio 2, you would buy ExxonMobil, 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.

19 Page 19 List of Past Recommendations The stocks below are all of the previous recommendations of Sure Dividend using The 8 Rules of Dividend Investing that are currently open. Each stock is rated as either a Buy (see the portfolio building guide for more on this) or a Hold. The date each stock was first recommended is shown as well. Name Ticker Current Rank Status 1 st Rec. Date Clorox CLX 23 Hold April 2014 Target TGT 49 Hold April 2014 AFLAC AFL 20 Hold April 2014 Chubb CB 16 Hold April 2014 Kimberly-Clark KMB 11 Hold April 2014 Genuine Parts Co. GPC 30 Hold May M MMM 24 Hold May 2014 AT&T T 22 Hold June 2014 EcoLab ECL 13 Hold October 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 stocks 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.

20 Ending Thoughts The purpose of this newsletter is to provide a systematic and time-efficient guide to dividend growth investing. Each month, the Top 10 rankings will change, either in order or in the company s included. When building a dividend growth portfolio, investing in high quality businesses that will likely compound your wealth far into the future is key. High quality businesses can compound returns year after year at a rate faster than the overall market. PepsiCo is an excellent example. The company has grown revenues per share at over 10% a year over the last 10 years. The company s solid dividend yield and relatively high payout ratio make its historical growth and total return even more impressive. The company shows no signs of slowing down thanks to strong performance in its Frito-Lay snack division. Another example of a high quality business compounding wealth is Phillip Morris. The company continues to reward shareholders with its strong dividend yield and growth despite being in a declining market. This shows how far an intelligent and disciplined management can take a strong brand even when there are significant headwinds in an industry. Going forward, I hope you feel confident in the businesses in which you invest. Many Sure Dividend stocks are well known. I believe businesses with which you are familiar provide additional psychological safety. When you know what you own, you are less likely to sell during drawdowns. 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.