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
Results for BlackRock, J&J, and More -- The Week in Dividends 2019-04-18
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:

Please see new analyst notes below from Morningstar Research Services for BlackRock BLK, Genuine Parts GPC, Johnson & Johnson JNJ, and Omnicom OMC.

Also, if you missed the alert from earlier today, the May issue of DividendInvestor is now available for download.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor




News and Research for Dividend Select Portfolio Holdings

BlackRock Benefited From 1Q Positive Flows and Market Gains; We're Increasing FVE Slightly to $495

by Greggory Warren, CFA | Morningstar Research Services LLC | 04-17-19

While there was little in wide-moat-rated BlackRock's first-quarter earnings that would alter our long-term view of the firm, we expect to raise our fair value estimate to $495 per share to reflect a stronger first quarter than we were projecting. BlackRock closed out the March quarter with a record $6.515 trillion in managed assets, up 9.0% sequentially and 3.1% year over year, with positive flows, foreign exchange gains, and market gains all contributing to assets under management.

Net long-term inflows of $59.0 billion during the first quarter were fueled by $14.0 billion of active inflows (primarily from BlackRock's fixed-income operations), $14.4 billion of inflows from its institutional index business (with fixed-income inflows also offsetting equity outflows during the period), and iShares (where the company's exchange-traded fund platform generated $30.6 billion in inflows despite seeing its first quarterly outflows from its equity ETF offerings since the first quarter of 2016). Although BlackRock's annual organic growth rate of 2.2% over the past four calendar quarters trails management's annual target rate of 5%, its annualized rate of 4.3% (based purely on first-quarter results) was more in line with our long-term forecast for 3%-5% organic AUM growth annually.

BlackRock reported a 6.6% decline in first-quarter revenue compared with the prior-year period, as a 1.0% decline in average long-term AUM combined with a 3.9% decline in the firm's fee realization rate and meaningfully lower performance and distribution fees to affect the top line. While BlackRock reported a 160-basis-point decline in first-quarter operating margins to 36.8% when compared with the same period in 2018, we still believe that the firm will close out the year in a 38%-40% range (as the first quarter tends to have higher compensation costs than the remaining three quarters of the year).

Despite a Slow Start to 2019 in Europe, Our Long-Term Targets for Genuine Parts Remain Intact
by Zain Akbari, CFA | Morningstar Research Services LLC | 04-18-19

While a slow first quarter for its European automotive unit and currency headwinds should lead us to temper our 2019 expectations, we anticipate an offsetting time value of money-related adjustment will keep our valuation for narrow-moat Genuine Parts near its current $103 per share mark. As the soft results in Europe appear to be attributable mostly to transitory (weather-related) factors, our long-term targets for the firm, calling for 4% organic annual revenue growth and 7% adjusted operating margins, on average over the next decade, should also see little change.

Genuine Parts posted $4.7 billion in first-quarter sales and a 6.8% operating margin. Management reaffirmed its 2019 guidance, calling for 3%-4% sales growth against adjusted diluted EPS of $5.75 to $5.90 (or 4%-5% and $5.81 to $5.96 excluding currency pressure), behind our 4.9% and $6.04 pre-announcement targets.

The automotive unit (56% of 2018 sales) saw 2% sales growth against just under 40 basis points of operating margin deleverage (to 6.8%), versus our 4% and flat respective full-year targets. Although a softer European economy and upheaval from Brexit contributed, management cited weather in the region as the main culprit, with a mild winter curbing demand. While the company’s experience with the European market is relatively recent (coming after it acquired Alliance Auto Parts in 2018), warm winters were the primary factor behind the automotive parts industry’s 2017 slowdown in the United States. We anticipate a similar trajectory, with the unit likely to remain sluggish throughout 2019 (the strain of cold weather accelerates part failures) before recovery should the following winter prove more typical. Still, Genuine Parts should benefit from low-single-digit inflation, which we are encouraged (though not surprised) that it has been able to pass on to customers. In all, we do not plan to materially alter our long-term segment forecast (4% sales growth, 9% average operating margin).

J&J Posts Solid 1Q, but Increasing Generic Competition Weighs on Full-Year Outlook
by Damien Conover, CFA | Morningstar Research Services LLC | 04-16-19

Buoyed by strong drug sales and solid expense management, Johnson & Johnson reported first-quarter results slightly ahead of our and consensus expectations, but we don't expect any major changes to our fair value estimate based on the minor outperformance. Recent drug launches in oncology and immunology supported total operational drug sales growth of 8% year over year, outpacing device (up 4%) and consumer (up 1%) sales. The strong drug sales reinforce the intangible assets moat source backing our wide moat rating.

While first-quarter drug sales were solid, we expect the division's growth to slow later in the year due to increasing generic pressure. We expect intensifying generic competition to cancer drugs Zytiga and Velcade along with continued pressure from biosimilar Remicade in immunology to weigh on total drug sales. We believe these factors played a part in management's decision to sell Advanced Sterilization Products and record the gain in adjusted earnings to maintain overall earning growth for the year. Following 2019, we expect generic pressure to ease and recently launched drugs to return the drug group to steady growth.

The medical device segment continues to accelerate growth, offsetting weakness in the consumer group. Strong growth from devices in interventional solutions, including in electrophysiology for atrial fibrillation, helped offset relatively flat operational growth from orthopedics. In consumer, slow overall industry growth weighed on sales, but we also believe J&J's strong brand power is not holding up as well in the increasingly important online sales channel.

J&J is holding expenses in check slightly better than we expected, but the one-time legal charge of $423 million is concerning and probably relates to talcum litigation. We continue to expect only a minor impact to our J&J fair value estimate based on this litigation and have modeled close to $2 billion in related charges.

Omnicom Kicks Off 2019 With Strong Organic Growth in 1Q; Maintaining $85 FVE
by Ali Mogharabi | Morningstar Research Services LLC | 04-16-19

Omnicom reported impressive organic revenue growth along with year-over-year operating margin expansion, which led to better-than-expected bottom-line results. Strengths in the U.S. and Europe during the quarter were encouraging. Management maintained its 2019 top- and bottom-line guidance. We made slight adjustments to our projections and are maintaining our fair value estimate of $85 per share. The stock of this narrow-moat name is up nearly 5% and is approaching our fair value estimate and 3-star territory. We continue to recommend investments in ad holding names, which also include Publicis, WPP, and IPG, as upside to our fair value estimates and the firms' average 5% dividend yield remain attractive.

Total first-quarter revenue of $3.46 billion was down 4.4% year over year as headwinds, including foreign exchange and impact of divestitures, more than offset the firm's strong 2.5% organic growth, which slightly accelerated from the 2018 rate. North America revenue had an organic growth of 2.2% due to strong media buying in the U.S., plus the 6.1% growth contributed from Canada. European and Asia-Pacific regions posted organic growth rates of 3% and 2.1%. U.K.'s 1.3% organic growth along with solid growths in the Netherlands, Spain, and Germany, all of which more than offset weakness in France, led to the overall organic growth in Europe. The firm performed well in Australia, India, and New Zealand, which led to the 2.1% organic growth in Asia-Pacific compared with last year. Omnicom noted some weakness in China as a few projects were delayed, but are still likely to be completed this year. Weakness in Brazil, which is likely to persist, pushed revenue generated in Latin America down 3% from last year.

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.

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.
 
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