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
Analyst Updates for Compass Minerals and FirstEnergy -- The Week in Dividends 2021-04-09
From the DividendInvestor news file this week:

Enterprise Products Partners EPD and Plains GP Holdings PAGP both declared distributions this week that were unchanged from their previous payouts.

Please see new analyst notes and updates below from Morningstar Research Services for Compass Minerals CMP and FirstEnergy FE, as well as a general note about the home improvement market.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor



News and Research for Dividend Select Portfolio Holdings

Maintaining $78 FVE as Compass Announces Additional Fertilizer Divestitures
by Seth Goldstein, CFA | Morningstar Research Services LLC | 04-08-21

On April 8, Compass Minerals announced that it had reached an agreement to sell its North American micronutrients businesses to Koch Industries for $60.25 million. The deal is targeted to close by the end of the second quarter of 2021, which we think is a reasonable timeline. While Compass does not disclose micronutrient volumes within its plant nutrition North America segment, we estimate that these fertilizers accounted for less than 10% of total segment volumes. We think Compass received a fair price for the assets. After updating our model to incorporate the deal, we maintain our $78 per share fair value estimate and wide moat rating.

At current prices, we view Compass as undervalued, with shares trading in 4-star territory. We point to higher near-term salt profits, from higher prices and lower unit production costs, as a near-term catalyst for shares. The current bidding season for highway deicing salt has just begun. With average winter weather and the shutdown of a competitor's salt mine, we expect deicing salt prices will rise as demand outpaces supply. Additionally, as Compass continues to improve production at the low-cost Goderich mine, we expect unit production costs will fall. Higher prices and lower costs should boost profits starting in the fourth quarter of 2021.

The North American micronutrient businesses include premium products such as Wolf Trax. Once the deal closes, Compass' North American business will sell nearly all sulfate of potash, or SOP. While we view the deal as value-neutral, we are in favor of the move from a strategic standpoint. Compass' best assets are its low-cost salt mines and its low-cost SOP operation at Ogden, which underpin our wide moat rating. As such, we think management is smart to divest noncore assets as a way to pay down debt and restore the balance sheet. Further, the focus on optimizing the salt business and growing SOP volumes over time should provide value-accretive organic growth opportunities in the future.

Biden's Infrastructure Plan Would Benefit FirstEnergy's Transmission Investment
by Charles Fishman, CFA | Morningstar Research Services LLC | 04-06-21

We are reaffirming our $42 fair value estimate for FirstEnergy after President Joe Biden announced a $2.3 trillion infrastructure investment plan. Biden's proposal calls for $100 billion to upgrade and expand the U.S. transmission system. However, passage of the plan could be challenging with Democrats holding only small majorities in the U.S. House and Senate. Even if Biden is unsuccessful in advancing his infrastructure plan, we believe the administration's focus on infrastructure will bolster FirstEnergy's transmission investment.

Although the market has fixated on the political bribery scandal in Ohio, we estimate Ohio state-regulated distribution system earnings will contribute less than 20% of FirstEnergy's consolidated earnings in 2021. The company's transmission segment, regulated by the Federal Energy Regulatory Commission, is expected to contribute over 28% of 2021 earnings.

We forecast that FirstEnergy's "Energizing the Future" program, focused on its transmission businesses, will receive 42%, or $6.6 billion, of the $15.7 billion companywide planned capital expenditures over the next five years. We estimate the larger percentage of future transmission investment relative to current consolidated earnings contribution will drive earnings from the transmission segment to 31% of operating earnings by 2025.

In February, a settlement was reached that would move the JCP&L transmission system under FERC jurisdiction from New Jersey state regulation. JCP&L's $1.1 billion of rate base, about 12% of FirstEnergy's total transmission rate base, was the only remaining state-regulated transmission system. By 2023, 100% of FirstEnergy's transmission rate base will be regulated under FERC formula rates. This ratemaking framework is more investor-friendly than typical state regulation, which requires a utility to invest capital ahead of customer rate adjustments to collect a return on and return of that capital.

The U.S. Repair and Remodel Market Is Poised for Long-Term Growth
by Brian Bernard, CFA, CPA, and Jaime M. Katz, CFA | Morningstar Research Services LLC | 04-05-21

Home improvement spending during pandemic-stricken 2020 was atypical in two respects. First, households spent more time at home and allowed fewer contractors to enter homes (due in part to social distancing practices), causing a surge in do-it-yourself projects. Second, despite the pandemic-induced economic downturn, improvement spending increased across most product categories. Typically, demand for higher-priced discretionary products (for example, cabinets) wanes during a recession, but the combination of government stimulus, fewer discretionary spending outlets, and more time spent at home caused improvement spending to buck the historical trend in 2020.

In our view, the swell of DIY spending in 2020 likely pulled forward some future demand, and we expect to see DIY normalize in 2021. However, we think pent-up demand for professional projects will begin to release this year, and as such, a resurgence of higher-ticket do-it-for-me projects should more than offset weaker DIY spending. Overall, we expect repair and remodel spending growth will moderate but remain positive in 2021, then strengthen thereafter. Over the short term, the release of pent-up DIFM demand and deployment of additional government stimulus and household savings should support elevated spending. However, the R&R market should also benefit from several long-term secular growth tailwinds, including aging housing stock, favorable demographics, and increased acceptance of smart home and energy-efficient products and solutions. We also believe a greater national focus on addressing racial inequality could help boost minority household income and homeownership rates, which could support further repair and remodel spending.

Our base-case forecast projects R&R spending to expand at a 4.6% 10-year compound annual growth rate, reaching a $660 billion addressable market in 2030. We project owner-occupied R&R growth (4.7%) will outpace rental R&R growth (3.7%) over the next 10 years.

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.

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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.

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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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