About the Editor

David Harrell 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.

David served in several senior research and product development roles and was part of the editorial team that created and launched Morningstar.com. He was the co-inventor of Morningstar's first investment advice software. David joined Morningstar in 1994. He holds a bachelor's degree in biology from Skidmore College and a master's degree in biology from the University of Illinois at Springfield.

Our Portfolio Manager

George Metrou is an equity portfolio manager for Mornigstar Investment Management. Metrou joined the team as a portfolio manager in August 2018. Before joining Morningstar Investment Management, he was an equity portfolio manager with Perritt Capital, and as a portoflio manager with Perritt Capital Management. Prior to that he served as Director of Research and as an equity analyst at Perritt Capital, and as a portfolio manager with Windgate Wealth Management. He holds a Bachelor's degree in finance form DePaul University, and 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 Editor's Photo
David Harrell
Editor, Morningstar DividendInvestor
David Harrell 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
Wells Fargo Makes It Official -- The Week in Dividends 2020-07-02
From the DividendInvestor news file this week:

As anticipated, Wells Fargo WFC announced on Monday that it was reducing its quarterly dividend. The company expects to announce the new rate for its third-quarter dividend on July 14, when it releases its second-quarter financial results.

Also this week, General Mills GIS declared a quarterly dividend that was unchanged from its previous payout. (The company has a paid a quarterly dividend of $0.49 since 2017.)

Please see a new analyst note below from Morningstar Research Services for General Mills, along with notes for Duke Energy DUK and Pfizer PFE.

Best wishes for a happy (and safe) 4th of July weekend,

David Harrell
Editor, Morningstar DividendInvestor


News and Research for Dividend Select Portfolio Holdings

At-Home Eating Drives Strong Quarter for Narrow-Moat General Mills, but Shares Fully Valued
by Rebecca Scheuneman, CFA | Morningstar Research Services LLC | 07-01-20

The pandemic-related shift to at-home eating (a channel that accounts for 85% of its sales) boosted General Mills' fourth-quarter organic sales by 12% and adjusted operating margin by 40 basis points to 17.7%. For fiscal 2020, organic sales grew 3% and operating margins improved 40 basis points to 17.3%, compared with our estimates of 2% and 17.5%, respectively. We plan to maintain our long-term expectations for 2% annual organic sales growth and 18% operating margins and do not expect a material change to our $54 fair value estimate. With the shares trading modestly above this level, they appear fully valued.

While the pandemic doesn't alter our views on the long-term potential size of the packaged food market, increased trial could lead to enduring share gains for brands that generate high repeat purchase rates. During the quarter, General Mills increased household penetration by 2 points in each of its major markets (U.S., Canada, Europe, China, Brazil), realized share gains in nine of its 10 largest U.S. categories, and reported repeat purchase rates that broadly outpaced category averages, citing the highest rates for Cheerios, Pillsbury, Betty Crocker, Annie's, and Old El Paso. We were pleased that the firm increased media investments by 39% in the quarter, which should further support strong brand equities that underpin our narrow moat rating. General Mills solidified its lead in U.S. cereal with 70 basis points of share gains in fiscal 2020. The firm also reported another strong year for pet, with double-digit all-channel retail sales growth. However, snack bars lost share in fiscal 2020, although innovation and improved merchandising led to share gains in the fourth quarter. And U.S. yogurt is taking a bit longer than we expected to stabilize, as Greek and light varieties continue to decline, but the core business (original style, Go-Gurt) and new innovations (Starburst, dairy-free Oui) are strong and should help to improve the business in fiscal 2021.

General Mills' free cash flow grew 42% in fiscal 2020 to $3.2 billion, allowing the firm to reduce net debt to adjusted EBITDA to 3.2 times, besting the firm's 3.5 goal and our 3.4 estimate. We expect the firm to approach its long-term goal of 3.0 times by fiscal 2021, which should position it to resume dividend increases or pursue acquisitions.

Duke Energy Receives Constructive Indiana Rate-Case Decision
by Andrew Bischof, CFA, CPA | Morningstar Research Services LLC | 07-01-20

We are reaffirming our $95 fair value estimate and stable, narrow moat ratings after Duke Energy received a constructive order from the Indiana Utility Regulatory Commission for its subsidiary Duke Energy Indiana.

Regulators approved a $146 million rate increase and a 9.70% allowed return on equity with a 53% equity component in the unit's capital structure. Duke initially requested a $396 million rate increase and 10.4% allowed return on equity.

We expected regulators would approve a slightly higher allowed return on equity, but the higher-than-expected equity component offset the impact, resulting in no fair value estimate change. Rates will go into effect in two steps, with 75% of rates effective late July 2020 and the remaining effective in the first quarter next year. Overall, the rate-case decision supports our view that Indiana remains a constructive, albeit average, regulatory jurisdiction for Duke.

On average, we think Duke operates in supportive regulatory jurisdictions. Florida remains one of the most constructive regulatory jurisdictions in the U.S., with industry-leading allowed returns on equity, automatic base-rate adjustments, and strong growth opportunities.

North Carolina remains supportive of Duke Energy's capital investment plan focused on transmission and distribution investments and gas infrastructure development. South Carolina's regulatory environment has declined recently, but the jurisdiction represents just 12% of the company's rate base. We think Duke has enough growth opportunities across its service territories to adjust capital allocation if necessary.

Duke Energy remains one of the cheapest regulated utilities we cover, and we think its steep discount to its peers is unjustified. The company's 4.7% dividend yield is a 110-basis-point premium to its peer group as of early July.

Good News from BioNTech and Pfizer's Phase 1/2 COVID-19 Vaccine Trial, but Long Road Ahead
by Anna Baran | Morningstar Research Services LLC | 07-01-20

On July 1, partners BioNTech and Pfizer reported positive early data for one of four vaccine candidates against SARS-CoV-2. The data from an ongoing U.S. trial demonstrated promising antibody responses with good safety data for the two lower doses of the vaccine candidate, BNT162b1. We are maintaining our fair values for no-moat BioNTech and wide-moat Pfizer at $40 per ADR and $42.50 per share, respectively.

In the phase 1/2 trial, all 24 patients that received the two lower doses (10 micrograms and 30 micrograms) showed elevated antibody levels, and those responses, on average, were above the levels observed in the comparison panel of 38 patients that had naturally contracted SARS-CoV-2. We don't yet know what level of immunity is needed for protection against the virus, but to see an immune response above what is observed in patients that naturally contracted the virus is a promising start. Further, side effects in patients that received the two lower doses were mild to moderate and quickly resolved. These included local pain at the injection site, fever, headaches, and fatigue. The highest dose, 100 micrograms, was dropped following heightened side effects after the initial dose. We're encouraged by the results from the two lower doses--both the efficacy observed and the absence of serious side effects.

We expect data for the remaining three candidates over the coming weeks, which will allow the partners to select a lead candidate to move forward into a large phase 2b/3 trial, which may start as early as July 2020. BioNTech and Pfizer continue to ramp up manufacturing capacity, with plans to produce up to 100 million doses by the end of 2020 and over 1.2 billion by the end of 2021.

Several open questions remain, including the duration of the response, as the trial only tested the immune response for two weeks after the second dose. Further, it's worth noting that the trial was conducted in healthy adults under 55 years of age, so the response may differ for other patient populations. Additionally, we'll continue to watch results from the comparison panel, which in this case included serum from a broad set of patients, aged 18 to 83, with varying severity of infection.

BNT162b1, one of four candidates tested by BioNTech and Pfizer, is a nucleoside-modified mRNA (modRNA) candidate that expresses the SAR-CoV-2 receptor binding domain (RBD). The companies are also testing a modRNA candidate targeting the full spike protein, a self-amplifying mRNA (saRNA) candidate targeting the full spike protein, and a uridine mRNA (uRNA) candidate targeting the RBD. The uRNA and modRNA candidates will require both an initial immunization and a booster dose, but the saRNA only requires one injection at a low dose, as saRNA requires a dose about 60 times lower than uRNA to induce immunity. While any progress with vaccine development will have substantial implications for the world, the saRNA candidate could be a strong differentiator relative to other vaccines against SARS-CoV-2 in development and have a meaningful impact on manufacturing capacity, ease of distribution, and medication adherence.

Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. Analyst ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst ratings are based on Morningstar’s analysts’ current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst ratings are not guarantees nor should they be viewed as an assessment of a stock's creditworthiness. Ratings, analysis, and other analyst thoughts are provided for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2020 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.

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.
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