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 Harrel 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 Reduction in Fair Value for Welltower -- The Week in Dividends 2018-10-12
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:

Procter & Gamble PG declared a quarterly dividend that was, as anticipated, unchanged from its previous quarterly payout.

Please see new analyst notes below from Morningstar Research Services for Omnicom OMC, Wells Fargo WFC, and Welltower WELL.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor



News and Research for Dividend Select Portfolio Holdings

WPP Loses Ford Creativity to Omnicom, but Volkswagen Opportunity Remains; Both Stocks Undervalued
by Ali Mogharabi | Morningstar Research Services LLC | 10-09-18

On Oct. 8, Ford Motor Company finally decided on which ad agencies it will work with going forward and chose Omnicom's BBDO as its creative agency, displacing WPP. However, Ford did retain WPP as its media agency. While Ford's decision will help Omnicom organic revenue growth in 2019, in our view, its negative impact on WPP revenue will not be significant. Plus, we must note that WPP has an opportunity to offset the effect of Ford's decision, as it is one of the final three agencies pursuing the Volkswagen account. We have not adjusted our projections for Omnicom or WPP and are maintaining our per share fair value estimates of $85 and GBX 1,500 for the two firms, respectively. Omnicom and WPP are 4-star stocks, which we continue to recommend for investors.

Small Additional Legal Accrual for Wells, but Expenses Remain on Target for Longer-Term Decrease
by Eric Compton | Morningstar Research Services LLC | 10-12-18

Wide-moat Wells Fargo continues to wade through its legal issues, recording another $241 million in remediation accruals. However, operating losses were at $605 million, down from $619 million last quarter, and far lower than the over $1 billion in losses per quarter for multiple quarters preceding this. This is at least in the right direction, and the bank announced no new legal issues, as the charges were related to already announced items. The return on average tangible common equity improved to 14.3%, and diluted EPS was up over 30% year over year. If Wells can begin to get past its legal and operating woes, maintain expense discipline, and return to anywhere close to its former profitability, the bank is arguably undervalued at today's prices. We are maintaining our fair value estimate of $67 per share.

Primary consumer checking customers were up 1.7% year over year, retention rates for these customers reached a five year high, and debit and credit card purchase volumes were also both up year over year. We view these as positive signs that Wells' underlying consumer business has not been permanently weakened or impaired. Average loan balances were down, which was largely expected, and this was across a broad number of different loan portfolios. However, average credit card balances still managed to grow quarter over quarter for the bank. Credit quality remained pristine, as the net charge-off ratio remained range-bound and provisions picked up only slightly. Management reiterated their expense guidance, and we see the bank being able to consistently decrease the expense base through 2020. This is partially helped by the assumption that legal accruals will not be as sizable and will eventually go away, but it is also based on taking real costs out of the business as well.

Given how Wells is repositioning its balance sheet, it hasn't seen as much of an increase in net interest margins as some peers. However, the bank’s deposit betas remain low, and we still project some expansion in net interest margins helping offset the shrinking balance sheet. Fee income was roughly flat year over year. The bank’s trust and investment fees continued their slow downward trend, but Wells surprisingly saw an uptick in mortgage related fees, despite current headwinds. Expenses remain well in line with our own projections, and we largely view Wells as an expense story over the next several years. Even with little to no revenue growth, if the bank can control expenses and eliminate legal charges, Wells should be well on its way to regaining its past profitability.

Third-Quarter Senior Housing Numbers Lower Our FVE but also Uncertainty for Welltower
by Kevin Brown | Morningstar Research Services LLC | 10-08-18

We are reducing our fair value estimate for no-moat healthcare REIT Welltower to $72 from $74 after reducing near-term senior housing growth estimates, incorporating the HCR ManorCare acquisition into our model and making additional adjustments to our model ahead of the company's third-quarter earnings call. However, we are also reducing our uncertainty rating for Welltower from high to medium as our concerns over senior housing supply have waned over the past few quarters. The National Investment Center for Seniors Housing & Care reported that the national average for seniors housing occupancy was down to 87.9%, the lowest level since the second quarter of 2011. Inventory growth continues to outpace absorption, which suggests that occupancy will continue to decline further into 2019. Additionally, senior housing margins are likely to come under pressure as rent growth has fallen below national labor cost growth. We have reduced our growth assumptions for seniors housing in 2018 and 2019 to reflect the continued slowdown of this sector.

However, we continue to be positive about this sector's long-term outlook. The third-quarter NIC report also showed that construction as a percent of inventory has fallen for the third straight quarter. Companies are reporting that construction starts this year have been less than half of the volume seen in the peak year of 2015. The reduction in starts should lead to lower inventory growth in the next two years, at which point the absorptions should be increasing due to the aging Baby Boomer population. Seeing multiple quarters of declining construction starts and rising construction material prices gives us greater confidence that senior housing will be positioned to potentially produce several years of strong growth. With Welltower's strong position in the senior housing sector, we think that there is less risk for the company today then there was at the peak of senior housing supply a few quarters ago.

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.

©2018 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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