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
Fair Value Adjustments for Welltower and Genuine Parts -- The Week in Dividends 2019-05-24
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:

BlackRock BLK and Omnicom OMC both declared quarterly dividends this week that were unchanged from their previous payouts.

Last week, Morningstar analysts increased their fair value estimate for Welltower WELL. An update from Morningstar Research Services LLC is below, as well as an updated investment thesis for Genuine Parts GPC and a notice that the fair value estimate for BT Group BT is under review.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor

News and Research for Dividend Select Portfolio Holdings

A Fair Value Increase for Welltower
by Kevin Brown | Morningstar Research Services LLC | 05-14-19

We are increasing our fair value estimate to $79 from $77 as we incorporate first-quarter 2019 results and recently announced acquisitions and dispositions into our model. Our fair value estimate implies a mid-5% cap rate on our forward four-quarter net operating income forecast, 17 times multiple on our forward four-quarter funds from operations estimate, and 4.4% dividend yield, based on a $3.48 annualized payout.

The rent, occupancy, and margin assumptions for each sector drive total company annual same-store NOI growth averaging 2.6% across our 10-year forecast. We expect continued acquisition and disposition activity as Welltower repositions its portfolio and improves the overall quality of its assets; we project $400 million-$500 million in acquisitions annually at an average cap rate of about 6.1% and $120 million of dispositions at 6.7% cap rates as the company looks to recycle lower-quality assets to partially fund the acquisition of higher-quality assets. We plan to incorporate potential significant acquisitions, such as the $1.25 billion acquisition of a 55-property, Class A medical office portfolio from CNL Healthcare Properties set to close in 2019, as they are announced. Additionally, we expect Welltower to invest roughly $360 million annually in new development and redevelopment projects at a 7.5% average yield. We estimate Welltower's net asset value to be approximately $65 per share. We use NAV as an assessment of the firm's potential private-market value, essentially viewing the firm as a portfolio of assets. To calculate the NAV, we utilize recent asset transactions to assign a cap rate to each segment of the portfolio, apply the cap rates to arrive at gross asset value for the company's real estate, put a multiple on the company's non-real estate assets, add the non-income producing tangible assets, then net out the company's liabilities (excluding corporate overhead considerations). We find NAV to be a useful data point in gauging the underlying value of the firm, especially as the likelihood for realizing this value through potential asset sales, recapitalization, or mergers and acquisitions activity.

Genuine Parts Should Benefit From Strong Market Conditions in the Automotive Part Retail Sector
By Zain Akbari | Morningstar Research Services LLC | 05-24-19

As a top distributor of automotive and industrial/electrical parts (56% and 34% of 2018 net sales, respectively), Genuine Parts benefits from industry dynamics favoring its scale-enabled service levels. We believe the firm will use its cost advantage to boost sales through its ability to offer a wide variety of parts on short order, building inventory and cost leverage as sales rise while fortifying brand value in a way subscale peers cannot economically replicate. Aftermarket auto-parts retailers serve DIY and professional clients. The faster-growing latter category (about 75%-80% of segment sales) depends on high levels of part availability and rapid delivery to turn repair bays quickly. Both categories have benefited from rising miles driven and average vehicle age, along with low unemployment. Genuine Parts (mostly via its NAPA brand) should benefit due to its infrastructure, which enables it to economically offer a vast catalog with quick delivery. We believe its acquisition of Alliance Automotive should elevate its standing with global vendors. Similar dynamics prevail in its industrial parts group (Motion Industries and EIS). Clients need to receive replacement parts quickly, particularly when failures result in costly downtime. Customers (facilities engineers) depend on the unit's part availability and its trained staff for assistance in locating the needed component, guidance on an oft-unfamiliar installation procedure, and rapid delivery. Spreading infrastructure and inventory investments over a large sales base leads to a cost advantage over small peers, while service levels reinforce the firm’s brand intangible asset in a way smaller rivals cannot duplicate. Genuine Parts maximizes automotive and industrial inventory turnover by centralizing slow-selling items, as several locations can call upon warehoused parts as demand warrants. We believe resulting virtually on-demand availability cannot be matched by subscale peers, enabling Genuine Parts to act as a consolidator.

We are trimming our valuation for Genuine Parts to $101 per share from $103, reflecting somewhat sluggish first-quarter earnings. Our estimate implies forward fiscal 2019 enterprise value/adjusted EBITDA of 12 times and adjusted forward P/E of 17, incorporating 4% organic revenue growth and a 7% operating margin, on average, over the next decade.

We expect favorable aftermarket auto-parts trends to persist as vehicles from larger, post-financial crisis sales cohorts age into retailers' sweet spot. Genuine Parts should see 4% average segment sales growth long term after adjusting for Alliance and other smaller acquisitions, outpacing low-single-digit industry expansion as scaled sellers assert their advantages. Focus on more profitable DIY customers as well as rising infrastructure and inventory leverage should lift segment margins to 10% long term from 8.1% in 2018.

BT Group Under Review
by Michael Hodel, CFA | Morningstar Research Services LLC | 05-17-19

We are placing our fair value estimate for BT Group under review. We will publish an updated report and valuation by May 27.

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.

©2019 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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