About the Editor

Michael Hodel is the editor of Morningstar DividendInvestor, a monthly newsletter that focuses on dividend income investment strategy. For illustration purposes, issues highlight activities pertaining to a Morningstar, Inc. portfolio invested in accordance with a current income and income growth from stocks strategy.

Michael is portfolio manager for Morningstar Investment Management LLC, a federally registered investment adviser and a wholly-owned subsidiary of Morningstar,Inc. At Morningstar, Mike was a technology strategist for Morningstar, responsible for telecommunications research. He also served as chair of Morningstar's Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. He joined Morningstar in 1998.

Hodel holds a bachelor's degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign and a master's degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

 
Investment Strategy

Dividends are for everyone regardless of age. The outcome of owning dividend-yielding stocks is the key variable-higher-yielding stocks with safe payouts being less risky while affording investors who don't need current income the ability to reinvest/reallocate the capital.

The goal of the Dividend Select Portfolios is to earn annual returns of 8% - 10% over any three-to-five year rolling time horizon. We further seek to minimize risk, as defined by the probability of a permanent loss of capital. For our portfolio as a whole, this goal is composed of:

3% - 5% current yield
4% - 6% annual income growth

 
About Josh Joshs Photo
Michael Hodel, CFA
Editor, Morningstar DividendInvestor
Portfolio Manager, Dividend Select Portfolios
Michael Hodel is the editor of Morningstar DividendInvestor, a monthly newsletter that focuses on dividend income investment strategy. For illustration purposes, issues highlight activities pertaining to a Morningstar, Inc. portfolio invested in accordance with a current income and income growth from stocks strategy.
Featured Posts
A Solid Quarter for Spectra Energy Partners -- The Week in Dividends 2017-05-19

DividendInvestorâ„  focuses on the activities of portfolios of Morningstar, Inc. that are invested in accordance with the Dividend Select strategy. These portfolios are managed by Morningstar Investment Management LLC, a registered investment adviser, who manages other client portfolios using these strategies.

From the DividendInvestor news file this week:

Altria MO held its annual shareholder meeting on Thursday and also announced a $0.61 quarterly dividend. As expected, this amount was unchanged from the previous quarter (Altria traditionally increases its payout with the dividend it declares in August). The text of CEO Marty Barrington's meeting remarks can be read here.

Three other Dividend Select portfolio holdings also declared dividends this week -- PPL PPL, Realty Income O, and Ventas VTR. As expected, all amounts were unchanged from the previous quarter or, in the case of Realty Income, month.

New Morningstar analyst notes for Enbridge ENB and Spectra Energy Partners SEP were published this week. For Enbridge, Morningstar increased its fair value estimate in Canadian dollars, though the FVE remains unchanged ($43) in U.S. dollars, due to currency movements. Enbridge's uncertainty rating was also changed from medium to high. Both notes are included below.

Finally, if you're interested in watching the webcast of Pfizer's PFE upcoming June 9 analyst and investor conference call, you can pre-register here. More details about the call are here.

Best wishes,

David Harrell
Managing Editor, Morningstar DividendInvestor


News and Research for Dividend Select Portfolio Holdings

Spectra Acquisition Adds Value for Enbridge; Stock Looks Modestly Undervalued
by Joe Gemino, CPA | Morningstar Research Services LLC | 05-15-17

After updating our model to incorporate Enbridge's first-quarter results, we are raising our fair value estimate to CAD 59 per share from our previous estimate of CAD 55 per share. Due to USD/CAD movements, our USD fair value estimate is unchanged at $43 per share. Over CAD 8 billion in natural gas growth projects associated with the Spectra acquisition are the driving force behind in the increase in our estimate and provide the company with ample secured cash flows. Trading near CAD 55 per share, the stock looks modestly undervalued.  We believe that the market doesn't realize the full potential of the company's growth portfolio, which was strengthened by the recent acquisition. As such, we expect Enbridge to continue to generate significant free cash flow, allowing the company to grow its dividend approximately 10% annually over the next five years.

In addition, we are changing our uncertainty rating to high from our previous rating of medium. If commodity prices rally, Enbridge's growth portfolio could add even more value to the company. As such, we are increasing our bull-case valuation to $64 (CAD 88) from our previous bull estimate of $48 (CAD 63). Furthermore, we are maintaining the company's wide moat rating.  

Spectra Energy Partners Executes Well Through First Quarter Following Spectra-Enbridge Merger
by John Buethe | Morningstar Research Services LLC | 05-16-17

Spectra Energy Partners reported first-quarter results slightly ahead of consensus after adjustments for special items. The Partnership generated $545 million of ongoing EBITDA (earnings before interest, taxes, depreciation, and amortization) compared with consensus expectations of $508 million. The primary driver of the beat was favorable contribution from expansion projects (including Sabal Trail, AIM, and NEXUS). We have noted an accelerating incremental earnings contribution from these projects, with total U.S. Transmission segment revenue growing over 20% year over year in the first quarter. It is worth noting that the Partnership's slate of expansion projects further accelerates over the next 12-18 months. Management noted that it has $4.4 billion of capital expansion projects in execution (this will increase the size of the company's asset base by nearly 20%). We see these efforts, particularly projects like Atlantic Bridge, NEXUS, and TEAL, as strategically compelling, high return projects.

With the merger between Spectra and Enbridge now complete, Spectra Energy Partners endures as a key earnings growth driver for the combined entity. With $1.7 billion of available liquidity paired with $1.8 billion in capital expansion commitments in 2017, we expect the Partnership to be able to fully fund its growth projects through its "At the Market" equity offering program as well as through additional debt raises. Strong operating performance and earnings contribution from growth projects is putting the Partnership in good stead to deliver on its cash flow guidance of $1.4 billion-$1.48 billion (with distribution coverage above 1 times). We expect high-single-digit distribution growth through the end of the decade at least. With an attractive yield and headroom for growth, we continue to view the company favorably. At this time we keep our fair value estimate of $50 per unit.


©2017 Morningstar, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. The information contained in this document is the proprietary material of Morningstar, Inc. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar, Inc., is prohibited. All data presented is based on the most recent information available to Morningstar, Inc. as of the release date and may or may not be an accurate reflection of current data.  There is no assurance that the data will remain the same.

Disclosure:
The commentary, analysis, references to, and performance information contained within Morningstar® DividendInvestorâ„ , except where explicitly noted, reflects that of portfolios owned by Morningstar, Inc. that are invested in accordance with the Dividend Select strategy managed by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc.  References to "Morningstar" refer to Morningstar, Inc. 

Opinions expressed are as of the current date and are subject to change without notice. Morningstar, Inc. and Morningstar Investment Management LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use.  This commentary is for informational purposes only and has not been tailored to suit any individual. 

The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment.

This commentary contains certain forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.   

Investments in securities are subject to investment risk, including possible loss of principal.  Prices of securities may fluctuate from time to time and may even become valueless.  Securities in this report are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information.  Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.

Common stocks are typically subject to greater fluctuations in market value than other asset classes as a result of factors such as a company's business performance, investor perceptions, stock market trends and general economic conditions.  

All Morningstar Stock Analyst Notes were published by Morningstar, Inc. The Week in Dividends contains all Analyst Notes that relate to holdings in Morningstar, Inc.'s Dividend Select Portfolio. Morningstar’s analysts are employed by  Morningstar, Inc. or its subsidiaries.  In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission.

David Harrell may own stocks from the Dividend Select and Dividend Select Deferred portfolios in his personal accounts.

 
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