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New DRIPs Bring New Opportunities

Over the past couple of years, a number of companies have introduced new Direct Purchase Plans (DRIPs), often in conjunction with the initiation of their first dividends.

Companies that offer DRIPs make it possible to buy shares without first opening an account with a broker. Generally, these are large cap companies whose products and services are used and appreciated around the world. The best of these companies tend to raise their dividends regularly and are relatively stable during times of market volatility.

What’s more, since you can increase your holdings by making small dollar amount investments over time, DRIP investors have a measure of protection against reacting emotionally to the whims of the marketplace.

For this DRIP portfolio, we’ve chosen a widely diverse group of what we feel are the best of the “new” DRIPs. Some come from small companies that are not followed by analysts, while others come from multi-billion dollar companies that have matured to the point that they feel comfortable distributing a portion of their earnings to shareholders.

One example is The Buckle, Inc., a financially strong retailer with no debt, no preferred stock, and no pension obligations. This mid-cap began paying dividends in 2003, at 9¢ per share, a payout that has grown to 80¢ this year. It also has a pleasant habit of paying a special annual dividend. In 2008, it paid an additional $2 per share; in 2009, it paid an extra $1.80; in 2010, it distributed an additional $2.50; and last year, the extra dividend was $2.25 per share.

Although yet to be announced, it will likely pay another special dividend this year, in addition to its 20¢ quarterly payout. And for the fiscal year ending next January, it should reach a milestone of $1 billion in annual sales, while earning about $3.35 per share, up from $3.20 in fiscal 2011, and is expected to net about $3.52 per share in 2013.

When some companies grow too large to manage efficiently, they execute spin-offs. If the “parent” company has a DRIP, the new spin-off often initiates a similar plan. Such was the case with Marathon Petroleum, spun-off by Marathon Oil in July 2011. Marathon Petroleum consists of the refining, marketing, and transportation businesses, while Marathon Oil retained the drilling operations. Petroleum’s management has now taken preliminary steps to spin off its crude oil and pipeline businesses. That unit could operate on its own and generate between $150 and $200 million in annual profits. Meanwhile, Marathon Petroleum logged profits of $2.39 billion in 2011, up from $623 million in 2010. The company is expected to earn about $7.43 per share this year, compared with $6.72 in 2011.

Before I settle on companies to include in these portfolios, I run the choices past Moneypaper editors Pat Racaniello, Dave Fish, and Mike Burke. Companies that make it into the portfolio are those that they agree are worthy of long-term accumulation. However, many of these new companies charge fees for investing (but not necessarily for dividend reinvesting).

For companies with fees, make larger investments less frequently so that fees represent no more than 1% of the invested amount. If your investing budget is limited, you might invest quarterly instead of monthly to bring your investment to at least $500 for companies that charge a $5 investing fee.

To find out more about the plans offered by these companies and/or to become enrolled in the company DRIP, click on the company name below or go to www.directinvest.com.

New DRIPs Bring New Opportunities Portfolio

Agilent Technologies (NYSE:A) operates three divisions: Electronic Measurement Devices (50% of 2011 revenues); Chemical Analytics (23%); and Life Sciences (27%). With the exception of 2009, earnings have increased annually since 2004. The initial quarterly dividend (10¢ per share) was paid in June. It has $3.9 billion in cash, compared with only $2.18 billion in debt. Earnings in fiscal 2010 (ends in Oct.) were $1.77 per share, $2.65 last year, should total about $3.25 this year, and $3.72 in fiscal 2013.

American Water Works (NYSE:AWK) was founded in 1886. Headquartered in New Jersey, it’s the largest publicly traded water company in the US, providing 15 million people with drinking water, wastewater treatment, and other services in 30 states and two Canadian provinces. The annual dividend of $1 per share is up from 80¢ in 2008. Estimates call for about $2.02 per share this year and $2.13 in 2013, compared with $1.66 in 2011.

Amgen Inc. (NasdaqGS:AMGN) is the world´s largest biotech medicines company. It discovers, develops, manufactures, and markets human therapeutics, in the US, Europe, and Canada. Quarterly dividends were initiated last Sept. at 28¢ per share and were raised to 36¢ in March. This year, revenues should top $16 billion for the first time, while earnings should total about $6.33 per share (and $6.90 is projected for 2013, compared with $5.33 in 2011).

Buckle Inc. (NYSE:BKE) is a financially strong retailer of higher-priced clothing for people between ages 15 and 30. Its stores are primarily in regional shopping malls. As of May, the company operated 433 stores in 43 states. Quarterly dividends have risen from 9¢ per share in 2003 to 80¢ now. Since 2008, it has paid special annual dividends of over $2 per share. BKE is sitting on $220 million in cash, has no debt, no pension liability, and no preferred stock. It has less than 48 million common shares outstanding.

Dollar General (NYSE:DG) is a retailer with about 10,000 stores, located in both rural and urban areas across 39 states, mostly east of the Mississippi. It offers consumables, home products, and apparel at discounts. This year, it is expanding into California, with 50 additional locations. During fiscal year 2011 (ended Feb. 2012), it opened 625 stores, remodeled or relocated 575, and closed 60. Earnings have grown from 34¢ per share in 2008 to $2.37 in 2011, and $2.81 is expected this year and $3.31 in 2013.

Exelis Inc. (NYSE:XLS) was spun off last Oct. by ITT. It operates four divisions: Electronic Systems, Geospatial Systems, Information Systems, and Mission Systems. Management expects to earn $1.80-$1.86 per share this year on revenues of about $5.5 billion. In 2011, earnings were $1.99 on revenues of $5.8 billion. About 70% of revenue is from the Pentagon, which is cutting back spending. The company is seeking business from its nonmilitary customers.

Freeport McMoRan Copper & Gold (NYSE:FCX) is a cyclical company that mines copper and gold and is the world’s largest low-cost producer of molybdenum (producing about 20 million pounds in 2013, with plans to increase to 30 million in the future). Management stated that the company will spend $275 million on exploration in 2012, up from $221 million last year, and expects copper production to increase by about 25% over the next three years, to 225 million pounds. Earnings were $2.93 in 2009, $4.57 in 2010, and $4.78 in 2011. Dividends are now set at $1.25 per share, up from the $1.00 in 2011 and the 91¢ paid in 2010.

Horace Mann Educators Corp. (NYSE:HMN) is a multiline insurance company selling primarily to K-12 teachers, administrators, and other public school employees and family members. It also underwrites personal lines of property and casualty insurance that include automobile and homeowners insurance and offers retirement annuities and life insurance products. The shares have a book value of $29.06 while trading at just under $18. A $50 million repurchase program is in place. During the second quarter, it repurchased over 504,000 shares. As of June 30, the program had a remaining authorization of $36.0 million. There are currently 39,357,609 shares outstanding.

Marathon Petroleum (NYSE:MPC) was spun off from Marathon Oil in 2011. It is a major crude oil refiner, transporter, and marketer, with six refining plants that produce 1.2 million barrels per day. It also supplies gasoline to 5,000 independent stations in 18 states and operates over 1,300 Speedway Stations. Sales were over $73 billion in its first year of operation. Management has taken steps toward spinning-off its crude oil and pipeline business. The quarterly dividend has been raised from 20¢ to 25¢ per share since the spin-off.

Martin Midstream Partners LP (NasdaqGS:MMLP) collects, transports, stores, and markets petroleum products and by-products in the Gulf Coast region. It owns or operates 27 marine shore-based terminal facilities and 12 specialty terminals that provide storage, processing, and handling services. A Natural Gas Services unit gathers and processes natural gas, and distributes natural gas liquids. It also produces petroleum-based chemicals. Management owns 54.55% of the 16.37 million outstanding shares. Distributions have grown from $1.23 per share in 2002 to the present $3.05, for a generous 8.7% yield.

MOCON Inc. (NasdaqGM:MOCO) was founded in 1966 and has been paying a dividend since 1989. It develops, manufactures, and markets measurement, analytical, monitoring, and consulting products and services worldwide. Its products measure the rate at which various gases and vapors pass through a variety of materials. The company also provides gas analysis and monitoring instrumentation for oil and gas exploration, food and beverage companies, and pharmaceuticals. It also offers products to detect leaks in sterile medical trays, food pouches, blister packs, and other sealed packages.

Morningstar Inc. (NasdaqGS:MORN) is an investment advisory company that operates in two units: Investment Information and Investment Management. The Information segment offers data, software, and research products and services for individual investors, financial advisors, and institutional clients. The Management segment offers investment consulting, asset allocation, variable annuities, and retirement solutions. Dividends started in December 2010 at 5¢ per share, which has since risen to 10¢.

Phillips 66 Company (NYSE:PSX) was spun off April 30 by ConocoPhillips and engages in the refining, marketing, and distribution of petroleum and chemical products, primarily in the US, Europe, and Asia. As of May, it operated 15 refineries, 15,000 miles of pipeline, and 10,000 gasoline stations. It also owns interests in natural gas gathering operations, liquids processors, and pipelines. The company just declared its first quarterly dividend of 20¢ and is expected to earn about $4.95 this year on revenues of about $200 billion.

Portland General (NYSE:POR), an electric utility holding company, serves about 820,000 customers in the state of Oregon. Its generating plants use 19% coal, 10% gas, 9% hydro, and 6% wind, with the remainder purchased from other power producers. The dividend has been increased each year since 2007 and now totals $1.08 annually, for a healthy 3.9% yield. The stock has a book value $22.41 per share with earnings holding steady in $1.90-$2.00 range.

Realty Income Corp. (NYSE:O) is a Real Estate Investment Trust (REIT) that pays a monthly dividend to yield about 4.2%. It owns mostly retail commercial properties, leased under triple net leases (in that the tenant agrees to pay all taxes, insurance, and maintenance on the property). Of late, it has been diversifying its portfolio by buying wineries, vineyards, office buildings, and distribution centers. Since 1997, dividends have increased annually, including quarterly increases during the last decade.

SJW Corp. (NYSE:SJW) is a small-cap company engaged in the production, purchase, storage, purification, distribution, and retail sale of water. A subsidiary, SJW Land Company, owns undeveloped land in California and Tennessee and owns and operates commercial buildings in California, Florida, Connecticut, Texas, Arizona, and Tennessee. SJW provides water service to 226,000 customers in CA. It also provides water service to about 10,000 connections that serve 36,000 residents in Texas. It pays a dividend of 71¢ per share annually, for a yield of 3.1% and has increased its payout for 45 consecutive years.

Starbucks Corp. (NasdaqGS:SBUX) purchases and roasts whole bean coffees. It operates in 50 countries through about 17,000 stores, of which 10,787 are in the US. It offers about 30 blends of premium coffees and sells coffee paraphernalia, music, books, and gift items. It offers other food items including pastries, sandwiches, salads and more. Quarterly dividends, which started in June 2010 at 10¢ per share, have grown to 17¢. Earnings have increased every year since 1995, with the exception of 2008. SBUX earned $1.28 per share in fiscal 2010 (ends in Sept.), $1.52 in 2011, and estimates call for about $1.85 this year and $2.32 in 2013.

Steel Dynamics Inc. (NasdaqGS:STLD) is a steel producer and metals recycler, with five electric-arc furnace mini-mills that produce steel from scrap, utilizing continuous casting and automated rolling mills. It operates three segments: steel operations, metals recycling and ferrous resources operations, and steel fabrication operations. Last year, it earned $1.23 per share, up from 67¢ in 2010, but earnings are expected to dip to about 87¢ this year before rebounding to $1.47 in 2013. The annual dividend is 40¢ per share, for a yield of 3.1%.

Viacom Inc. ‘B’ (NasdaqGS:VIAB) is a media company that owns and operates cable TV stations and Paramount Pictures. It derives 29% of revenues from overseas. Its MTV Networks reach 635 million households in more than 160 countries via 170 channels, which include MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, and many more. The quarterly dividend was launched in 2010 at 15¢ per share, and has risen to 27.5¢. A $2.5 billion share buyback is in progress. Earnings are expected to total about $4.26 per share in 2012 (ends in Sept) and $4.92 in 2013, compared with $3.78 last year.

WellPoint Inc. (NYSE:WLP) was founded in 1944, and formerly called Anthem. It is America´s largest health benefits company, offering network based managed care plans to large and small employers, individuals, Medicare, and seniors, as well as life and disability insurance, dental, vision, and behavioral health benefit services, radiology benefit management, personal care guidance, and long-term insurance. It has $20.3 billion in cash, with only $11.0 billion in debt. The book value of $72.71 is well above its trading price. The quarterly dividend, started at 25¢ per share in early 2011, is now 28.75¢. Estimates call for about $7.40 per share earnings of this year and $8.06 in 2013, up from $7.00 in 2011.

As editor and publisher of highly respected financial publications, Vita Nelson has helped hundreds of thousands of investors gain knowledge of direct reinvestment plans (DRIPs), providing information about the opportunities they offer and the simple steps to take to enroll and take advantage of them.