Sure Dividend. January 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 January 2016 Edition By Ben Reynolds

2 2 Table of Contents Opening Thoughts... 3 The Top 10 List... 4 Analysis of Top 10 Stocks... 5 Cummins (CMI)... 5 Wal-Mart (WMT)... 7 Archer-Daniels-Midland (ADM)... 9 Deere & Company (DE) Verizon (VZ) W.W. Grainger (GWW) United Technologies (UTX) Johnson Controls (JCI) General Mills (GIS) Abbott Laboratories (ABT) 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 The S&P 500 finished 2015 down about 1 percentage point (including dividends). This marks the first year since 2008 that the S&P 500 declined. Sectors exposed to commodities (especially oil) suffered in fiscal 2015: The Metals & Mining Industry SPDR (XME) fell 50% on the year The US Energy Sector SPDR (XLE) fell 22% on the year The year also saw the first Federal Reserve interest rate increase since The Federal Funds rate was increased from a range of 0%-0.25% to a range of 0.25%- 0.50%. This is expected to be the beginning of more rate increases. The lower the Federal Funds rate, the more the economy is (artificially) stimulated. Rate increases should slow economic growth as money becomes more expensive to borrow. Whatever happens in the greater economy, the message and method of Sure Dividend will remain the same: buy high quality dividend paying businesses at fair or better prices. This month s Top 10 includes many businesses I believe are trading at a sizeable discount to fair value. Chief among them are: Cummins, Deere & Company, and Archer-Daniels-Midland. The downturn in commodity prices which has caused poor earnings for many manufacturers to go on sale. Cummins is trading for dividend yield highs not seen in over a decade. Archer- Daniels-Midland is trading for its 2 nd highest dividend yield in its corporate history (it was only higher during the worst of the Great Recession). Excluding the Great Recession, Deere & Company is trading for dividend yield highs not seen since the mid 1990 s. Now is a great time to initiate or add to positions in these industry leaders. The same can be said for Wal-Mart, which is still trading near all time dividend yield highs. Note about Rankings This month AbbVie (ABBV) made the top 10 (it would have ranked 5 th ). I have removed it from the Top 10 because it generates 61% of its revenue from one drug (Humira) that goes off patent at the end of Qualitatively, the company is too risky for me to recommend in good conscience.

4 4 The Top 10 List Ticker Name Score Months Yield Payout Growth Beta Volatility CMI Cummins % 41% 14.0% % WMT Wal-Mart % 41% 6.0% % ADM Archer-Daniels-Midla % 38% 10.0% % DE Deere & Co % 42% 13.3% % VZ Verizon Wireless % 59% 6.0% % GWW W.W. Grainger % 38% 12.5% % UTX United Technologies % 38% 8.5% % JCI Johnson Controls % 34% 10.3% % GIS General Mills % 58% 8.0% % ABT Abbott Laboratories % 46% 10.0% % 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. Computer Services and Procter & Gamble were replaced by Archer-Daniels-Midland and Johnson Controls 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: 3.2% 2.1% Payout Ratio: 44.0% 45.2% Growth Rate: 9.9% 7.4% PE Ratio:

5 Analysis of Top 10 Stocks 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 3 rd quarter earnings (released October 27 th ) fell 8% due to the international growth slow down. Cummins management responded by announcing workforce reductions of 2,000 people and reducing manufacturing capacity. These shifts are expected to save ~$180 million a year. Next Dividend Record Date: Mid February, 2016 Next Earnings Release: Late January, 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 14.3% 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 through share repurchases. Cummins P/E ratio has averaged ~15.5 over the last 2 years. The company is currently trading for a P/E ratio (using adjusted earnings) of just 9.3. I estimate fair value for Cummins stock at around $146. It is currently trading for $88. Cummins stock doesn t need a catalyst excellent dividend growth prospects and a current yield of 4.4% give investors plenty of reason to own this stock. Maximum Drawdown (starting in year 2000): -76% in November of 2008 DRIP Available: Yes, has fees and for current shareholders only Dividend Yield: 4.4% 10 Year EPS Growth Rate: 14.3% 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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7 7 Wal-Mart (WMT) Overview & Current Events Wal-Mart is by far the largest retailer in the world. The company has generated revenues of $484 billion over the last 12 months. If Wal-Mart were a country (assuming revenue is about equal to GDP), it would be the 28 th largest in the world. 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. 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 3.2%. Wal-Mart is currently trading for an adjusted P/E ratio of just 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 around $80. The stock is currently trading for ~$61 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: 3.2% 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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9 9 Archer-Daniels-Midland (ADM) Overview & Current Events ADM was founded in 1902 in Minneapolis. Since that time the company has grown to become one of the world s largest agricultural processors and food ingredient producers. ADM stock was down over 27% in The company s earnings have declined due ito the strong dollar and low oil prices which reduce demand for ethanol. ADM realized adjusted earnings-per-share of $0.60 in its most recent quarter (11/3/15), versus $0.86 in the same quarter a year ago. Next Dividend Record Date: Late February, 2016 Next Earnings Release: Early February 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 its earnings-per-share 13.6% a year from 1999 through The company is in a cyclical down phase right now, but will recover. The long-term growth driver for ADM is increased food consumption from growing global populations. ADM s management is focusing on shedding lower margin businesses to increase margins. The company is also cutting costs and moving into the higher margin flavorings and additives business with the WILD Flavors acquisition. ADM investors should expect total returns of 10% to 13% a year from the stock s 3.0% dividend yield and expected earnings-per-share growth of 7% to 10% a year. ADM is currently trading for an adjusted P/E ratio of just ADM s historical median P/E ratio over the last decade is around Additionally, the company s earnings are artificially depressed at $2.97/share. Earnings would likely be around $3.50/share in normal economic conditions. Using normal earnings 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 ~$37 per share, a 21% discount to fair value. Maximum Drawdown (starting in year 2000): -68% in October of 2008 DRIP Available: Yes, with fees Dividend Yield: 3.0% 10 Year EPS Growth Rate: 10.5% 10 Year Dividend Growth Rate: 12.1% Most Recent Dividend Increase: 16.7% Dividend History: 40 consecutive years of dividend increases

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11 11 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 double-digit earnings-per-share growth over full economic cycles. 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 $76 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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13 13 Verizon (VZ) Overview & Current Events Verizon is the largest wireless carrier in the United States based on its ~44% market share. Verizon is the 23 rd largest corporation (based on market cap of $188 billion) publicly traded in the United States. Verizon posted favorable results in its most recent quarter (10/20/15). The company saw adjusted earnings-per-share grow 17%. Margins increased 33%, and revenue grew 5.4% versus the same quarter a year ago. Next Dividend Record Date: Early January, 2016 Next Earnings Release: January 21 st, 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 11% a year from its large dividend yield of 4.9% 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 $46 a share. Based on its historical average price-to-earnings ratio, shares should be trading for around $56 a share. Maximum Drawdown (starting in year 2000): -55% in July of 2002 DRIP Available: Yes, with fees Dividend Yield: 4.9% 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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15 15 W.W. Grainger (GWW) 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 its 3 rd quarter 2015 earnings on October 16 th. The company saw adjusted earnings-per-share decline 8%. The following headwinds are causing the company s slow-down, by affecting W.W. Grainger s customer base): Economic slowdown in China, Strong United States dollar, and oil and gas price declines. The company s competitive advantage and market position remains intact, however. Next Dividend Record Date: Mid February, 2016 Next Earnings Release: Mid January, 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 15% a year over the last decade. Shareholders should expect excellent total returns going forward of 15% to 20% a year over the next 3 years. Low oil prices could potentially reduce returns somewhat but double-digit annual total returns are still very likely. 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 $3 billion in shares over the next 3 years which comes to 6% share count reductions a year. In addition, the company has a dividend yield of 2.3%. 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 $203. Maximum Drawdown (starting in year 2000): -56% in October of 2000 DRIP Available: Not at this time Dividend Yield: 2.3% 10 Year EPS Growth Rate: 14.3% 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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17 17 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 just 1% in its most recent quarter (10/20/15). Much of the manufacturing sector is slowing; United Technologies is no exception. United Technologies closed its sale of Sikorsky helicopters to Lockheed Martin on November 6 th. The company will use the $6 billion in after-tax proceeds from the sale for share repurchases. In addition, the company recently announced (12/10/15) a new $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 9.4% a year over the last decade. Management is targeting 10%+ earnings-per-share growth through a mix of organic growth, share repurchases, margin expansion, and acquisitions. I expect earnings-per-share growth of 8% to 11% a year over the next several years. This growth, combined with the company s ~2.7% dividend yield gives investors expected total returns of 10.5% to 13.5% a year going forward. The company s management should be applauded for using the proceeds of the Sikorsky divestiture for share repurchases especially when the stock is undervalued. Over the last decade (excluding the Great Recession period), United Technologies P/E ratio has averaged It is currently at Fair value for the company s stock is around $107. The company s stock is currently trading for $96 a share. Maximum Drawdown (starting in year 2000): 52.7% in March of 2009 DRIP Available: Yes, with fees Dividend Yield: 2.7% 10 Year EPS Growth Rate: 9.4% 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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19 19 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 1885 and currently has a $25 billion market cap. The company has the following automotive market shares by region: China 44%, North & South America 36%, Europe 38%, SE Asia, Japan, Korea 13%. Johnson Controls posted excellent full year fiscal 2015 results (10/29/15). The company saw adjusted EPS increase 14% due to revenue growth (5% on a constant currency basis), rising margins, and share repurchases. Next Dividend Record Date: Early March, 2016 Next Earnings Release: Late February, 206 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 the Chinese market 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 long-term growth driver is population growth in emerging markets especially China. The company 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 is expecting 8% to 14% EPS growth in Over the long-run, the company will likely generate 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. Johnson Controls plans to spin-off its automotive business in late This is a significant change for the company. The company s share price is down about 15% since the announcement. What portion (if not all) of the spin-off to hold once it is completed will become clear when more information is released. The company s historical average P/E ratio is ~13.5. Johnson Controls is currently trading for a P/E ratio of Shares are currently trading for $39.50; fair value is likely around $46 a share. Maximum Drawdown (starting in year 2000): -80% in March of 2009 DRIP Available: Yes, with fees Dividend Yield: 2.9% 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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21 21 General Mills (GIS) Overview & Current Events General Mills is the leading packaged foods company in the US. The company s brands include: Annie s, Yoplait, Nature Valley, Betty Crocker, Cheerios, Lucky Charms, and Pillsbury (among others). Around 70% of the company s operating profits come from US retail. General Mills realized mediocre 2 nd quarter results (12/17/15). Adjusted earnings-per-share grew 5% on a constant currency basis. Gains were due primarily to margin improvements. Adjusted net profit margin increased to 11.4%, up from 10.6% in the 2 nd quarter a year ago (a 7.5% increase). Margins are rising for General Mills due to cost-cutting projects. Next Dividend Record Date: January 11 th, 2016 Next Earnings Release: Mid March, 2015 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 large size gives it an advertising spending advantage as well as the ability to acquire and scale smaller, promising brands (like Annie s). 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 has grown earnings-per-share at 8.4% a year over the last decade. Going forward, General Mills plans to grow revenue domestically through a focus on health benefits and natural/organic food products. The company is committed to growing earnings through improving margins with its 3 margin improvement programs: Project Century, Project Catalyst, and Project Compass. Between these 3 programs, General Mills is improving its North American supply chain, and eliminating approximately 1,500 jobs. General Mills has an adjusted P/E ratio of 19.0 and a dividend yield of 3.1%. Over the last decade, General Mills dividend yield has averaged 2.8%. Based on its historical dividend yield, the fair value for General Mills stock is around $63. The stock is currently trading at ~$58 a share. Maximum Drawdown (starting in year 2000): -32% in March of 2009 DRIP Available: Yes Dividend Yield: 3.1% 10 Year EPS Growth Rate: 8.4% per year 10 Year Dividend Growth Rate: 10.8% per year Most Recent Dividend Increase: 7.3% Dividend History: 118 consecutive years without a reduction

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23 23 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 is the global leader in adult nutrition United States leader in pediatric nutrition. Abbott Laboratories posted another quarter of favorable results this month (10/21/15). The company saw constant-currency sales rise 10.9% versus the same quarter a year ago. The company announced an 8.3% dividend increase on December 11 th, Next Dividend Record Date: January 15 th, 2016 Next Earnings Release: Mid-January, 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 20. The company is likely trading around fair value at current prices given its strong competitive advantage, favorable growth prospects, and shareholder friendly management. Since Abbott is likely trading around fair value, the company does not have a valuation catalyst. Emerging market growth and the global trend of spending more on health care will drive growth for the company in the future. Maximum Drawdown (starting in year 2000): -46% in July of 2002 DRIP Available: Yes, no fee but must already be a shareholder Dividend Yield: 2.3% 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 (w/ expected Jan 15 th dividend) (excludes reductions from ABBV spin-off in 2012) Note: Dividend yield history is skewed due to 2012 spin-off of AbbVie.

24 24 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

25 25 Analysis of International Stocks There are 5 international stocks that currently rank 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. Three of the international stocks in the top 10 are based in the United Kingdom, and the other two are based in Canada. The United Kingdom does not impose a dividend withholding tax on U.S. investors. Canada does have a 15% dividend withholding tax for United States investors, but does not impose a dividend withholding tax on IRA or 401k accounts of United States investors. Name Ticker (Foreign) Growth Rate Dividend Yield P/E Ratio Rank (If in Top 10) Weir Group LON:WEIR 12.5% 4.4% (before CMI) Rotork LON:ROR 13.7% 2.8% (after ADM, before DE) Canadian Utilities TSE:CU 7.3% 3.7% (after DE, before VZ) Fortis TSE:FTS 8.8% 4.0% (after VZ, before GWW) PZ Cussons LON:PZC 8.0% 2.8% (after GIS, before ABT 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 appears to be undervalued at current prices due to low oil prices. Rotork is an industrial equipment manufacturer serving the oil & gas, waste water, marine, and mining industries. The company specializes in actuators and flow control equipment. Rotork has paid increasing dividends for 25 consecutive years. Like Weir Group, Rotork also appears undervalued at current prices. Canadian Utilities is a diversified construction and utilities business operating primarily in Canada, Australia, and Mexico. The company has paid increasing dividends for 43 consecutive years. Fortis is a North American electric & gas utility corporation. The company offers investors solid growth and an above average dividend yield with a reasonable P/E ratio and below average stock price volatility. The company has paid increasing dividends for 42 consecutive years. PZ Cussons is a personal health care and consumer goods manufacturer based out of Manchester, United Kingdom. The company has paid increasing dividends for 42 consecutive years.

26 26 List of Stocks by Sector Each of the 181 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) - 2.7% 2. Valspar Corp. (VAL) - 1.6% 3. PPG Industries Inc. (PPG) - 1.5% 4. Enbridge, Inc. (ENB) - 4.6% 5. ExxonMobil Corp. (XOM) - 3.7% 6. Helmerich & Payne Inc. (HP) - 5.1% 7. Sherwin-Williams Co. (SHW) - 1% 8. Chevron Corp. (CVX) - 4.8% 9. Phillips 66 Partners LP (PSXP) - 2.8% 10. National Fuel Gas (NFG) - 3.7% 11. BHP Billiton (BBL) % 12. NACCO Industries (NC) - 2.5% 13. Imperial Oil (IMO) - 1.3% 14. Air Products & Chem. (APD) - 2.5% 15. RPM International Inc. (RPM) - 2.5% 16. H.B. Fuller Company (FUL) - 1.4% 17. Energen Corp. (EGN) - 0.2% 18. Air Liquide (AI.E) - 2.5% 19. Nucor Corp. (NUE) - 3.7% 20. ConocoPhillips (COP) - 6.3% 21. Murphy Oil (MUR) - 6.2% Technology 1. Verizon Wireless (VZ) - 4.9% 2. Computer Services Inc. (CSVI) - 2.5% 3. AT&T Inc. (T) - 5.6% 4. BCE, Inc. (BCE) - 4.1% 5. Telephone & Data Sys. (TDS) - 2.2% 6. Automatic Data Proc. (ADP) - 2.5% 7. Vodafone Group plc (VOD) - 5.4% 8. Diebold Inc. (DBD) - 3.8% 9. Brady Corp. (BRC) - 3.5% Financial 1. Waddell & Reed (WDR) - 6.4% 2. Franklin Resources (BEN) - 2% 3. T. Rowe Price Group (TROW) - 2.9% 4. Munich Re (MUV2.B) - 4.2% 5. Eagle Financial Services (EFSI) - 3.5% 6. AFLAC Inc. (AFL) - 2.7% 7. Harleysville Savings (HARL) - 3.9% 8. Eaton Vance Corp. (EV) - 3.3% 9. Cincinnati Financial (CINF) - 3.1% 10. Torchmark Insurance (TMK) - 0.9% 11. American Express (AXP) - 1.7% 12. Tompkins Financial Corp. (TMP) - 3.1% 13. Farmers & Merchants Ban. (FMCB) - 2.4% 14. HCP Inc. (HCP) - 5.9% 15. McGraw Hill Financial Inc. (MHFI) - 1.3% 16. Commerce Bancshares (CBSH) - 2.1% 17. Community Trust Banc. (CTBI) - 3.5% 18. 1st Source Corp. (SRCE) - 2.3% 19. First Financial Corp. (THFF) - 2.9% 20. First Financial Bankshares (FFIN) - 2.1% 21. Old Republic International (ORI) - 4% 22. National Retail Properties (NNN) - 4.3% 23. Universal Health Realty Trust (UHT) - 5.2% 24. M&T Bank Corporation (MTB) - 2.3% 25. Realty Income (O) - 4.4% 26. Arthur J Gallagher (AJG) - 3.6% 27. RLI Corp. (RLI) - 1.2% 28. Northern Trust (NTRS) - 2% 29. Mercury General Corp. (MCY) - 5.3% 30. Public Storage (PSA) - 2.7% 31. United Bankshares Inc. (UBSI) - 3.6% 32. Federal Realty Inv. Trust (FRT) - 2.6%

27 27 Consumer Goods 1. Archer Daniels Midland (ADM) - 3.1% 2. Johnson Controls (JCI) - 2.9% 3. General Mills (GIS) - 3.1% 4. PZ Cussons plc (PZC.L) - 2.8% 5. Procter & Gamble Co. (PG) - 3.3% 6. Church & Dwight (CHD) - 1.6% 7. Altria Group Inc. (MO) - 3.9% 8. Coca-Cola Company (KO) - 3.1% 9. Philip Morris (PM) - 4.6% 10. Kerry Group (KYGA.L) - 0.4% 11. PepsiCo Inc. (PEP) - 2.8% 12. Hershey (HSY) - 2.6% 13. Flowers Foods (FLO) - 2.7% 14. Cranswick plc (CWK.L) - 1.8% 15. VF Corp. (VFC) - 2.4% 16. Hormel Foods Corp. (HRL) - 1.5% 17. Ecolab, Inc. (ECL) - 1.2% 18. Kellogg (K) - 2.8% 19. The J.M. Smucker Co. (SJM) - 2.2% 20. Home Depot (HD) - 1.8% 21. McCormick & Co. (MKC) - 2% 22. Universal Corp. (UVV) - 3.8% 23. Stepan Company (SCL) - 1.5% 24. Nike (NKE) - 1% 25. Young & Co's Brewery (YNGA.L) - 1.4% 26. Nestle (NESN.V) - 3% 27. Mondelez (MDLZ) - 1.5% 28. Kraft-Heinz Company (KHC) - 3.2% 29. Brown-Forman Class B (BF-B) - 1.4% 30. Kimberly-Clark Corp. (KMB) - 2.8% 31. Diageo plc (DEO) - 3.9% 32. Colgate-Palmolive Co. (CL) - 2.3% 33. Bemis Company (BMS) - 2.5% 34. Clorox Company (CLX) - 2.4% 35. Sonoco Products Co. (SON) - 3.4% 36. Unilever (UL) - 3.2% 37. Lowe's Companies (LOW) - 1.5% 38. Carlisle Companies (CSL) - 1.4% 39. Lancaster Colony Corp. (LANC) - 1.7% 40. Leggett & Platt Inc. (LEG) - 3% 41. Weyco Group Inc. (WEYS) - 3% 42. L'Oreal (OR.E) - 1.7% 43. Henkel (HEN3.E) - 1.3% 44. HNI Corp (HNI) - 2.9% 45. Tootsie Roll Industries (TR) - 1.1% Utilities 1. Canadian Utilities (CU.TO) - 3.7% 2. Fortis (FTS.TO) - 4% 3. Consolidated Edison (ED) - 4% 4. SCANA Corp. (SCG) - 3.6% 5. Southern Company (SO) - 4.6% 6. Questar Corp. (STR) - 4.3% 7. Northwest Natural Gas (NWN) - 3.7% 8. UGI Corp. (UGI) - 2.7% 9. Vectren Corp. (VVC) - 3.8% 10. Black Hills Corp. (BKH) - 3.5% 11. Conn. Water Service (CTWS) - 2.8% 12. Atmos Energy (ATO) - 2.7% 13. WGL Holdings Inc. (WGL) - 2.9% 14. American States Water (AWR) - 2.1% 15. Otter Tail (OTTR) - 4.6% 16. MGE Energy (MGEE) - 2.5% 17. Middlesex Water Co. (MSEX) - 3% 18. California Water Service (CWT) - 2.9% 19. Piedmont Natural Gas (PNY) - 2.3% 20. SJW Corp. (SJW) - 2.6%

28 28 Industrial Goods 1. Weir Group plc (WEIR.L) - 4.4% 2. Cummins (CMI) - 4.4% 3. Rotork plc (ROR.L) - 2.8% 4. Deere & Co. (DE) - 3.1% 5. United Technologies (UTX) - 2.7% 6. Parker-Hannifin Corp. (PH) - 2.6% 7. Pentair Ltd. (PNR) - 2.7% 8. Emerson Electric (EMR) - 4% 9. Spectris Group plc (SXS.L) - 2.7% 10. Caterpillar (CAT) - 4.5% 11. Cobham plc (COB.L) - 3.8% 12. Dover Corp. (DOV) - 2.7% 13. Spirax-Sarco Engineering (SPX.L) - 2.1% 14. Donaldson Company (DCI) - 2.4% 15. Eaton (ETN) - 4.2% 16. Illinois Tool Works (ITW) - 2.4% 17. General Dynamics (GD) - 2% 18. Clarcor Inc. (CLC) - 1.8% 19. Nordson Corp. (NDSN) - 1.5% 20. Stanley Black & Decker (SWK) - 2.1% 21. 3M Company (MMM) - 2.7% 22. Tennant Company (TNC) - 1.4% 23. Gorman-Rupp Company (GRC) - 1.6% 24. Raven Industries (RAVN) - 3.3% Services 1. Wal-Mart Stores Inc. (WMT) - 3.2% 2. W.W. Grainger Inc. (GWW) - 2.3% 3. Disney (DIS) - 1.4% 4. Target Corp. (TGT) - 3.1% 5. Empire Co. (EMP.A.TO) - 1.6% 6. Genuine Parts Co. (GPC) - 2.9% 7. United Parcel Service (UPS) - 3% 8. McDonald's Corp. (MCD) - 3% 9. Cardinal Health (CAH) - 1.7% 10. Walgreens Boots Alliance (WBA) - 1.7% 11. ABM Industries Inc. (ABM) - 2.3% 12. RR Donnelley (RRD) - 7.1% 13. Cintas Corp. (CTAS) - 1.2% 14. Wolters Kluwer NV (WKL.A) - 2.3% 15. Sysco Corp. (SYY) - 3% 16. Bowl America (BWL.A) - 4.7% 17. Mine Safety Appliances (MSA) - 2.9% Health Care 1. AbbVie (ABBV) - 3.8% 2. Abbott Laboratories (ABT) - 2.3% 3. Johnson & Johnson (JNJ) - 2.9% 4. Becton Dickinson & Co. (BDX) - 1.7% 5. C.R. Bard Inc. (BCR) - 0.5% 6. Medtronic Inc. (MDT) - 2% 7. United Health Group (UNH) - 1.7% 8. Baxalta (BXLT) - 0.7% 9. Novo Nordisk (NVO) - 1.3% 10. Baxter International (BAX) - 1.2% 11. Merck & Co. (MRK) - 3.5% 12. Roche (ROG.V) - 2.9% 13. Eli Lilly & Company (LLY) - 2.4%

29 29 List of Stocks by Rank Each of the 181 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) Altria Group Inc. (MO) Cummins (CMI) Coca-Cola Company (KO) Wal-Mart Stores Inc. (WMT) AT&T Inc. (T) Archer-Daniels-Midla. (ADM) Philip Morris (PM) Rotork plc (ROR.L) C.R. Bard Inc. (BCR) Deere & Co. (DE) Medtronic Inc. (MDT) Canadian Utilities (CU.TO) Dover Corp. (DOV) AbbVie (ABBV) Franklin Resources (BEN) Verizon Wireless (VZ) Spirax-Sarco Enginee. (SPX.L) Fortis (FTS.TO) W.W. Grainger Inc. (GWW) United Technologies (UTX) Johnson Controls (JCI) General Mills (GIS) PZ Cussons plc (PZC.L) Abbott Laboratories (ABT) Phillips 66 (PSX) Waddell & Reed (WDR) Parker-Hannifin Corp. (PH) Johnson & Johnson (JNJ) Pentair Ltd. (PNR) Procter & Gamble Co. (PG) Consolidated Edison (ED) Kerry Group (KYGA.L) Target Corp. (TGT) T. Rowe Price Group (TROW) PepsiCo Inc. (PEP) Empire Co. (EMP.A.TO) Donaldson Company (DCI) Eaton (ETN) Hershey (HSY) Flowers Foods (FLO) Genuine Parts Co. (GPC) Munich Re (MUV2.B) United Health Group (UNH) Becton Dickinson & Co. (BDX) VF Corp. (VFC) Valspar Corp. (VAL) Emerson Electric (EMR) Spectris Group plc (SXS.L) PPG Industries Inc. (PPG) Caterpillar (CAT) Disney (DIS) Cranswick plc (CWK.L) Eagle Financial Services (EFSI) Hormel Foods Corp. (HRL) Ecolab, Inc. (ECL) Illinois Tool Works (ITW) AFLAC Inc. (AFL) Computer Services Inc. (CSVI) General Dynamics (GD) Church & Dwight (CHD) Cobham plc (COB.L) Enbridge, Inc. (ENB) SCANA Corp. (SCG) Southern Company (SO) Kellogg (K) This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

30 ExxonMobil Corp. (XOM) Novo Nordisk (NVO) Harleysville Savings (HARL) Eaton Vance Corp. (EV) Clarcor Inc. (CLC) The J.M. Smucker Co. (SJM) Home Depot (HD) Helmerich & Payne Inc. (HP) Nordson Corp. (NDSN) Sherwin-Williams Co. (SHW) McCormick & Co. (MKC) Cincinnati Financial (CINF) BCE, Inc. (BCE) Universal Corp. (UVV) United Parcel Service (UPS) Baxter International (BAX) American Express (AXP) Torchmark Insurance (TMK) Young & Co's Bre. (YNGA.L) Stepan Company (SCL) Nike (NKE) Chevron Corp. (CVX) Tompkins Financial (TMP) Farmers & Merchants (FMCB) Nestle (NESN.V) Questar Corp. (STR) McDonald's Corp. (MCD) Phillips 66 Partners LP (PSXP) Northwest Natural Gas (NWN) Cardinal Health (CAH) Merck & Co. (MRK) Stanley Black & Deck. (SWK) UGI Corp. (UGI) HCP Inc. (HCP) Baxalta (BXLT) McGraw Hill Financial (MHFI) Walgreens Boots Allia. (WBA) Mondelez (MDLZ) ABM Industries Inc. (ABM) M Company (MMM) Kraft-Heinz Company (KHC) Brown-Forman Class B (BF-B) Kimberly-Clark Corp. (KMB) Vectren Corp. (VVC) Commerce Bancshares (CBSH) Diageo plc (DEO) Colgate-Palmolive Co. (CL) Black Hills Corp. (BKH) National Fuel Gas (NFG) Community Trust Banc. (CTBI) Bemis Company (BMS) Clorox Company (CLX) BHP Billiton (BBL) Sonoco Products Co. (SON) Conn. Water Service (CTWS) NACCO Industries (NC) Imperial Oil (IMO) Unilever (UL) st Source Corp. (SRCE) Roche (ROG.V) RR Donnelley (RRD) First Financial Corp. (THFF) Lowe's Companies (LOW) Air Products & Chem. (APD) Carlisle Companies (CSL) RPM International Inc. (RPM) First Financial Bankshar. (FFIN) Old Republic Internatio. (ORI) Atmos Energy (ATO) Cintas Corp. (CTAS) WGL Holdings Inc. (WGL) Telephone & Data Sys. (TDS) National Retail Propert. (NNN) H.B. Fuller Company (FUL) Lancaster Colony (LANC) Wolters Kluwer NV (WKL.A) Universal Health Realty (UHT) M&T Bank Corporation (MTB) American States Water (AWR) Otter Tail (OTTR) Leggett & Platt Inc. (LEG) Automatic Data Proc. (ADP) This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

31 MGE Energy (MGEE) Weyco Group Inc. (WEYS) Realty Income (O) L'Oreal (OR.E) Tennant Company (TNC) Sysco Corp. (SYY) Bowl America (BWL.A) Vodafone Group plc (VOD) Henkel (HEN3.E) Arthur J Gallagher (AJG) HNI Corp (HNI) Mine Safety Appliances (MSA) Energen Corp. (EGN) Tootsie Roll Industries (TR) RLI Corp. (RLI) Eli Lilly & Company (LLY) Air Liquide (AI.E) Middlesex Water Co. (MSEX) Nucor Corp. (NUE) Diebold Inc. (DBD) Brady Corp. (BRC) Northern Trust (NTRS) Mercury General Corp. (MCY) Public Storage (PSA) ConocoPhillips (COP) California Water Servi. (CWT) Piedmont Natural Gas (PNY) SJW Corp. (SJW) United Bankshares Inc. (UBSI) Gorman-Rupp (GRC) Federal Realty Inv. Trust (FRT) Murphy Oil (MUR) Raven Industries (RAVN) 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 CMI Cummins $ 1,002 CMI Cummins $ 4,374 WMT Wal-Mart $ - WMT Wal-Mart $ 4,878 ADM Archer-Daniels-Midland $ - ADM Archer-Daniels-Midland $ 4,353 DE Deere & Co. $ - DE Deere & Co. $ 2,952 VZ Verizon Wireless $ - VZ Verizon Wireless $ 3,309 GWW W.W. Grainger $ - GWW W.W. Grainger $ 4,864 UTX United Technologies $ - UTX United Technologies $ 6,660 JCI Johnson Controls $ - JCI Johnson Controls $ 2,367 GIS General Mills $ - GIS General Mills $ 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 JCI, 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) 118 Hold April 2014 N/A Target (TGT) 45 Hold April 2014 N/A Kimb.-Clark (KMB) 109 Hold April 2014 N/A ExxonMobil (XOM) 67 Hold April 2014 N/A AFLAC (AFL) 62 Hold April 2014 N/A PepsiCo (PEP) 47 Hold April 2014 N/A McDonald s (MCD) 93 Hold April 2014 N/A Coca-Cola (KO) 35 Hold April 2014 N/A Genuine Parts (GPC) 53 Hold May 2014 N/A 3M (MMM) 106 Hold May 2014 N/A AT&T (T) 36 Hold June 2014 N/A Becton, Dickins. (BDX) 23 Hold June 2014 N/A Philip Morris (PM) 37 Hold June 2014 N/A J.M. Smucker (SJM) 72 Hold August 2014 N/A EcoLab (ECL) 60 Hold October 2014 N/A ConocoPhillips (COP) 173 Hold December 2014 N/A Kellogg (K) 66 Hold December 2014 N/A Helmerich & Payne (HP) 74 Hold February 2015 N/A Altria (MO) 34 Hold April 2015 N/A Baxalta (BXLT) 102 Hold July 2015 N/A BCE, Inc. (BCE) 80 Hold August 2015 N/A Caterpillar (CAT) 28 Hold August 2015 N/A Eaton (ETN) 50 Hold September 2015 N/A Johnson & Johnson (JNJ) 20 Hold November 2015 N/A Computer Servic, (CSVI) 30 Hold November 2015 N/A Procter & Gamble (PG) 22 Hold December 2015 N/A Chubb (CB) N/A Sold April 2014 July 2015 This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.