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
A Raise for BlackRock and a Strong Quarter for Wells Fargo -- The Week in Dividends 2022-01-14
From the DividendInvestor news file this week:

BlackRock BLK raised its quarterly payout to $4.88, an 18% increase, beginning with the dividend to be paid on March 23, 2022. Plains GP Holdings PAGP declared a quarterly distribution this week that was unchanged from its previous payout rate.

Please see new analyst notes and updates below from Morningstar Research Services for BlackRock, Edison International EIX, Enterprise Products Partners EPD, and Wells Fargo WFC.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor



News and Research for Dividend Select Portfolio Holdings

Strong Flows and Market Gains Offset Adverse Currency in BlackRock's Fourth Quarter
by Greggory Warren, CFA | Morningstar Research Services LLC | 01-14-22

We expect to increase our fair value estimate for wide-moat rated BlackRock to $960 per share following the company's release of fourth-quarter earnings that were at the upper end of our expectations as well as to adjust for our changing expectations for the U.S. corporate tax rate (which we had been projecting to increase to around 26% as part of the Build Back Better legislation). BlackRock closed out the December quarter with a record $10.010 trillion in managed assets, up 5.8% sequentially and 15.4% on a year-over-year basis. Annualized organic AUM growth of 7.7% during the fourth quarter, and full-year organic growth of 5.7%, was above our long-term annual target range of 3%-5% (and management's own guidance of 5%) as BlackRock generated solid flows from both its active fund and ETF operations.

While average long-term AUM was up 20.7% year over year during the fourth quarter, BlackRock recorded a 16.9% increase in base fee revenue growth as product mix shift (and money market fee waivers) led to a 2.2% decline in the firm's overall realization rate when compared with the prior year's period. Total revenue, meanwhile, was up 14.0% year over year as lower performance fee income was not completely offset by higher distribution, technology, and risk management fees. Top-line growth of 19.6% during 2021 was in line with our forecast 19%-21% range for the full year.

With regards to profitability, BlackRock posted a 30-basis-point increase in adjusted operating margins to 45.2%, leaving it slightly above our projected range of 44%-45% for the full year. Unlike most of the other traditional U.S.-based asset managers we cover, we are projecting an improvement in BlackRock's operating profitability over the next five years, with the firm's adjusted operating margins expected to come in at 45%-47% on average (compared with 44.4% during 2017-21). BlackRock raised its quarterly cash dividend to $4.88 per share, an increase of 18.2% over the prior quarterly dividend.

California Budget Proposal Illustrates Upside for Top Pick Edison International
by Travis Miller | Morningstar Research Services LLC | 01-12-22

We are reaffirming our $71 fair value estimate for Edison International after California Governor Gavin Newsom unveiled his state budget proposal loaded with funding for clean energy investments. We are reaffirming our narrow moat and stable moat trend ratings for Edison.

Edison remains one of the few utilities that trades at a discount to our fair value estimate despite climbing 23% in the fourth quarter, triple the Morningstar U.S. Utilities Index return. Edison is 10% undervalued as of Jan. 12 after our mid-December fair value estimate increase. Management raised the dividend 6% in December, beating our expectations. The stock's 4.3% dividend yield at the new $2.80 per share annualized rate is well above the 3.2% utilities sector average.

We continue to forecast Edison invests $6 billion annually at least through 2025, supporting 6% annual earnings and dividend growth.

Newsom's budget includes several large spending programs that should benefit Edison directly or indirectly. The largest is $6.1 billion to support zero-emissions vehicle growth during the next five years. This is on top of $3.9 billion that was allocated to ZEV investments in the 2021 state budget. Regulators already have approved Edison's plan to invest almost $1 billion in electric vehicle infrastructure, and we expect that to grow.

Edison also might be able to access some of the $2 billion in the budget plan for long-duration energy storage, green hydrogen, industrial decarbonization, offshore wind infrastructure, and other decarbonization projects during the next two years.

The budget also supports the state's $15 billion multi-year funding for climate resiliency, notably wildfire mitigation, in the 2021 budget. Although this won't impact Edison directly, additional state fire-fighting resources could help reduce the severity of future wildfires and reduce the liabilities Edison might face if its equipment sparks a fire.

Enterprise to Acquire Navitas Midstream for $3.25 Billion; We Expect Strong Near-Term Returns
by Stephen Ellis | Morningstar Research Services LLC | 01-10-22

Enterprise Products Partners has agreed to acquire Navitas Midstream for $3.25 billion in cash, to be funded by cash on hand and credit facilities, and the deal is expected to close in the first quarter of 2022. Navitas' assets include over 1 billion cubic feet per day of natural gas gathering capacity and represent Enterprise's entry point into Midland gas and natural gas liquids processing, as its existing assets only include downstream pipes. We think the deal makes sense from a financial perspective, as Enterprise's expected midpoint of $0.20 in distributable cash flow (DCF) per unit from Navitas in 2023 equates to a nearly 14% return on investment (about $441 million in DCF on a $3.25 billion investment). The relatively high returns are likely due to the recent construction of the assets (2018 to present), meaning they are likely located in some of the best areas of the Midland basin with breakevens below $40 a barrel, but also contributions from high oil and gas prices. We will maintain our fair value estimate and wide moat rating for Enterprise while we incorporate the deal into our model, likely alongside Enterprise's upcoming fourth-quarter earnings, where management could also reveal more information about the contract structure. Where the fee floors are set in the contracts are particularly important to maintaining Enterprise's returns if near-term oil and gas prices decline substantially.

The downside is that we do not expect the assets to be particularly moaty, given the high level of competitive intensity in the basin. This is a fact that even Enterprise acknowledged in the past as a reason why it did not own Midland G&P assets. While contracts tend to be long term, acreage dedication contracts are dependent on producer solvency, activity, and acreage economics, and building G&P assets have a low barrier to entry, as evidenced by the relatively quick build-out of Navitas.

Excellent Q4 for Wells Fargo as Expense Initiatives Remain on Track, Rate Sensitivity Coming Through
by Eric Compton, CFA | Morningstar Research Services LLC | 01-14-22

Wells Fargo reported solid fourth-quarter earnings per share of $1.38, beating the FactSet consensus of $1.11 and our own estimate of $1.15 (after making some tax rate adjustments). Revenue came in at $20.9 billion compared with consensus of $18.8 billion, while our estimate was a bit lower at $18.4 billion. The beat was primarily attributable to higher-than-expected net interest income and fee income.

NII came in higher than our expectations at $9.3 billion, as curve steepening likely helped, while the bank also made some securitized loans during the quarter. Fees were strong as the bank recorded $2.5 billion in gains from its venture capital/private equity business, along with gains of $943 million from the sale of the asset-management and corporate trust businesses.

The biggest focus for Wells Fargo remains its net interest income sensitivity, expense base progress given cost-cutting initiatives and regulatory investments, and progress on its regulatory issues. Overall, we think investors will react positively to the Jan. 14 earnings given the quarterly beat, expense plans staying on track, and the extra rate sensitivity coming through in what we expect to be 8% growth in NII in 2022, even without material balance sheet growth. We expect to raise our fair value estimate to at least $61 per share based on our updated tax assumptions, with potentially another several dollars coming through as we update our rate assumptions and other assumptions. We look forward to more details on the earnings call.

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.

©2022 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.

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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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Contact Your Editor
 
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