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
Reaffirmed Fair Value Estimates for AmeriGas and Duke -- The Week in Dividends 2018-11-16
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:

PPL declared a dividend this week that was unchanged from its previous quarterly rate.

Below, please see new analyst notes from Morningstar Research Services for AmeriGas APU and Duke Energy DUK. ExxonMobil XOM was tagged in a general note about oil prices that's also included below.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor

News and Research for Dividend Select Portfolio Holdings

No-Moat AmeriGas Reports Full-Year Results
by Andrew Bischof, CFA, CPA | Morningstar Research Services LLC | 11-13-18

We are reaffirming our $41 fair value estimate and no-moat and negative moat trend ratings for AmeriGas Partners after the partnership reported fiscal 2018 adjusted EBITDA of $605.5 million compared with $551.3 million in the same year-ago period. These results were in line with our estimates. Management initiated fiscal 2019 adjusted EBITDA guidance of $610 million-$650 million based on normal weather but excluding any planned acquisitions.

We recently reduced our fair value estimate by $5 per unit. We lowered our per-gallon gross profit expectations as we think it will be harder to maintain and increase margins in an industry with numerous headwinds. For these same reasons, we lowered our stage II expectations for return on invested capital and EBI growth. We think this is supported by a 19% increase in the average propane price during the year, increasing the incentive for customers to switch to cheaper natural gas where available.

Overall, temperatures in the year were 13% colder than normal, but retail volumes were up only 4%. Retail margins were approximately flat year over year. The company's smaller cylinder exchange and national account volumes continue to be a growth area for the company, increasing 4% and 11%, respectively, year to date. During the year, management acquired 3 million gallons, below our expectations, suggesting to us that the number of attractive acquisition candidates may be declining. We continue to incorporate minimal distribution growth in our outlook.

Management Meeting: Duke Energy's Atlantic Coast Pipeline Investor Focus a Key to Earnings Growth
by Andrew Bischof, CFA, CPA | Morningstar Research Services LLC | 11-12-18

We are reaffirming our $87 per share fair value estimate, narrow moat, and stable moat trend for Duke Energy after meeting with management at the Edison Electric Institute Financial Conference in San Francisco.

Management's recent announcement noting the increasing costs and delay at Atlantic Coast Pipeline remains a concern, as the investment is key to our five-year 5% earnings growth forecast. Costs for the Atlantic Coast Pipeline, or ACP, increased from $6.5 billion to $7.0 billion. Duke and majority partner Dominion will now pursue a phased-in service with the pipeline in full operation by mid-2020. We don't expect the delay to have a material impact on our fair value estimate as we had already assumed a ramp-up in capacity for the line, rather than full capacity in late 2019.

Duke noted it has gone back to its ACP partners for revenue increases for previous cost increases and has contract provisions in place ensuring utility-like returns. This provides us comfort that returns will remain within our expectations, supporting our growth forecast. Most major permits have been received, and construction is taking place in numerous regions. We also see significant long-term growth opportunities from a completed ACP, so near-term struggles such as working through numerous permits and legal challenges we think will payoff for investors long term.

Recently, Duke Energy Carolinas and Duke Energy Progress requested revenue increases of $168 million and $59 million, respectively, with allowed returns on equity of 10.5% and a 53% equity component. We expect a ruling in line with Duke Energy's recent rate case rulings in North Carolina, which allowed for a 9.9% allowed return on equity, slightly above the peer average. The recent rate case outcomes support our view that the Carolinas will continue to be an average regulatory jurisdiction providing support for the company's capital plan.

Oil Prices Reach Our Midcycle Forecast; Energy Valuations Looking More Attractive
by Dave Meats, CFA | Morningstar Research Services LLC | 11-13-18

WTI crude plunged 8% on Nov. 12, extending a rout that has wiped off 28% of the benchmark's value in about six weeks. Front-month futures ended the day at $55/bbl, aligning with our midcycle forecast for the first time since October 2017. The slump has weighed heavily on upstream equities, pushing the stocks of narrow-moat rated industry cost leaders like Diamondback Energy, Pioneer Natural Resources, and Continental Resources into 4-star territory. Among integrated firms, narrow-moat rated Royal Dutch Shell and Total are now considered undervalued as well.

The latest oil price declines came after OPEC (citing secondary sources) reported overall production growth of 127 mbbls/d in October. Saudi Arabia and the UAE further underscored their ability and willingness to ramp when necessary, collectively adding almost 270 mbbls/d in the period (after adding 147 mbbls/d in the prior month). That was more than enough to assuage market jitters related to Iran and Venezuela, which reported relatively modest losses of 156 mbbls/d and 40 mbbls/d, respectively. The full impact of U.S. sanctions is still unclear, as these did not take effect until November. But Iran has already lost 500 mbbls/d since the U.S. withdrawal from the nuclear pact was announced, and in the same period total production from OPEC has increased by 600 mbbls/d. Consequently, the supply shortage fears that drove up crude prices earlier this year now look overblown. In fact, key OPEC producers are now contemplating the need for further production cuts next year to avoid a glut forming instead.

We caution that further volatility is likely. OPEC's remaining spare capacity is unknown, and it's possible that steep declines are still on the way for Iran and Venezuela (not to mention Angola, Libya, and Nigeria). Likewise, on the demand side we note that the rebalancing of China's economy is widely expected to dent crude imports in the next few years, even though consumption and investment actually have comparable elasticities of demand. On the other hand, we question whether the market has fully incorporated the impact on demand of higher product prices, the strength of the U.S. dollar, or the downside risk associated with U.S.-China tariffs. The bottom line is that undersupply and oversupply are both plausible outcomes next year and making a directional bet on short-term crude prices is extraordinarily risky.

Instead, we focus on the midcycle price and activity level that keeps U.S. output growing in lockstep with the “call on the U.S.” For shale producers, collectively the global swing producer, the marginal cost is around $55/bbl. Though prices have now reached this level, the U.S. rig count still exceeds the “Goldilocks” level that balances the market in the next five years (by at least 150 rigs). Accordingly, we still see an upcycle playing out. Prices must fall further in the short run, or at least remain at the current level, to avoid excessive shale growth like what we saw in 2014. That limits our stock picks to the handful of undervalued producers listed above that can still thrive in a $55 environment.

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.

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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