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 Fat Raise from BlackRock -- The Week in Dividends 2021-01-22
From the DividendInvestor news file this week:

BlackRock BLK announced a 13.8% dividend increase with its quarterly dividend declaration on Thursday. The firm's annual payout per share is rising to $16.52 from $14.52. As of today's close, the stock yields 2.2%. Dominion Energy D, McDonald's MCD, and Texas Instruments TXN all declared dividends this week that were unchanged from their previous respective payouts.

Please see new analyst notes and updates below from Morningstar Research Services for Enbridge ENB, Procter & Gamble PG, and Williams Companies WMB, followed by a general note for utility stocks.

And here are a couple recent dividend-related articles from Morningstar.com:

1. Susan Dziubinski and Dan Lefkovitz highlight three dividend stocks that are currently undervalued, including two Dividend Select portfolio holdings and Atmos Energy ATO, which was just added to the Income Bellwethers watchlist.

2. This short video features three reasonably-priced utility stocks, including current Dividend Select holding FirstEnergy FE.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor

News and Research for Dividend Select Portfolio Holdings

Biden Revokes Keystone XL Permit
by Joe Gemino, CPA | Morningstar Research Services LLC | 01-21-21

In a highly anticipated move, newly inducted President Joe Biden revoked the Keystone XL's presidential permit on his first day in office. The president cited climate change issues as the underlying reason for revoking the project's permit. The move comes as no surprise to us, as we expected Biden to oppose the project.

The cancelation of the Keystone XL comes as good news to wide-moat Enbridge. It appears that investors are mistakenly worried about underutilization of the Mainline pipeline system due to the construction of competing pipeline expansions. Even if the Trans Mountain Expansion is placed into service in 2023 (our base case), we expect only minor underutilization of the Mainline until Canadian crude supply ramps to fill all available pipelines. With the stock trading near $35 (CAD 44), we see almost 30% upside in the stock coupled with a 7.5% yield.

Procter & Gamble's Heft Proves Unwavering in Q2, but Pace of Gains Stands to Temper
by Erin Lash, CFA | Morningstar Research Services LLC | 01-20-21

Leading up to wide-moat Procter & Gamble's second-quarter earnings release the overarching question remained anchored in whether it would be able to continue the string of mid- to high-single-digit organic sales marks that have come to characterize the results over the past two and a half years. And in that regard, the firm did not disappoint, posting an 8% underlying sales gain (driven by 5% higher volumes and a 3% benefit from increased prices and favorable mix), a far cry from the low-single-digit levels the business was chalking up just a few short years ago. But we don't surmise P&G's top-line momentum is the product of a shift in focus away from driving profitability improvement. P&G also boasted gross and operating margin expansion, up 150 and 250 basis points, respectively, to 53.1% and 27.2%, reflecting the benefit of sales leverage and productivity gains that offset a 7% increase in advertising for its leading brands.

When taken together, management again bumped up its fiscal 2021 outlook, now calling for 5%-6% organic sales growth (from 3%-4% most recently) and core EPS growth of 8%-10% (from 5%-8%), which outpace our 4% and 7% respective pre-print marks. While we intend to amend our near-term forecast in light of its year-to-date performance (which will likely boost our $113 fair value estimate by $1-$2 per share), we don't expect competitive angst will lay dormant over an extended horizon (as it has since the pandemic took hold). As such, we intend to hold the line on our long-term expectations for 4% annual sales growth and operating margins in the mid-20s (up from the low-20s average the past three years).

And despite this stellar performance, it's clear expectations have been raised, as shares slumped at a low-single-digit clip on the news. However, given the stock still sits at a mid-teens premium to our assessment of intrinsic value, we'd suggest investors remain on the sidelines until a more favorable risk/reward opportunity arises.

Williams' ESG Efforts Could Attract New Investors, but No Immediate Valuation Impact

by Travis Miller | Morningstar Research Services LLC | 01-20-21

We are reaffirming our $27 fair value estimate and narrow moat and stable moat trend ratings after Williams Companies detailed its environmental, social, and governance road map. The stock trades at a 17% discount to our fair value estimate and a 7% dividend yield as of Jan. 19, making it one of our top picks, especially for income investors.

In August, Williams became the first midstream company to commit to net-zero carbon emissions by 2050. We think this is achievable, since large customers like utilities with similar commitments will force Williams toward that goal.

In the near term, we think Williams will meet its commitment to a 56% reduction in greenhouse gases from 2005 levels by 2030. Williams has already reduced its GHG emissions by 44% and plans $3 billion of investment during the next five years to reduce GHG on its system. We think this will help Williams sustain more than $1 billion of growth investment annually while maintaining an investment-grade balance sheet and growing dividend.

The primary challenge for Williams is getting approval from customers and regulators to raise rates for its pipeline efficiency investments, which could make up 40% of its $3 billion of emissions-reduction investments. We believe Williams' efficient scale competitive advantage, especially at Transco, will allow it to earn a fair return on those investments.

Solar and renewable natural gas could represent another 30% of emissions-reduction investments. We expect Williams to keep these investments within its existing footprint, helping mitigate large execution risk. We think it's unlikely Williams will take on any large solar, renewable natural gas, or hydrogen investments outside its footprint before 2025.

We continue to forecast mostly flat 2020 earnings, in line with management's guidance range. Earnings growth in the gathering and processing business has been offset by weakness at the transmission and Gulf of Mexico segment.

Biden's Green Agenda Offers Growth Potential for Utilities

by Charles Fishman, CFA| Morningstar Research Services LLC | 01-22-21

We are reaffirming our fair value estimates, moat ratings, and moat trend ratings for U.S. utilities after President Joe Biden kicked off his environmental policymaking efforts. We consider the sector fairly valued.

We believe tighter environmental regulations are a net positive for most utilities. Growth investments in renewable energy, grid modernization, and electric vehicles should outweigh higher regulatory, operational, and financial risk. We forecast that the U.S. utilities we cover will invest $656 billion over the next five years, more than consensus expects and up from the $541 billion spent in the past five years. This supports our 5.5% average annual industry earnings growth outlook through 2024.

Biden's recommitment to the 2015 Paris Agreement won't have a material near-term impact on utilities. Most utilities' investment plans already reflect similar climate goals with support from state regulators and policymakers.

Investors should watch Biden's approach as the third president this decade to propose power plant emissions regulations. Courts have set a narrow path between Barack Obama's Clean Power Plan, which the Supreme Court stayed in 2016, and Donald Trump's Affordable Clean Energy rule, which was vacated by appeal on Jan. 19. We think it will be even tougher to get emissions legislation through Congress.

We expect emissions-reduction investments will remain a key growth driver for utilities because of state policies and demand from customers and investors. As the federal government has dithered, power plant carbon emissions have fallen 25% during the last decade due to economics and state policymaking. We forecast that natural gas generation will continue stealing market share from coal and renewable energy will double its market share by 2030.

We agree with consensus that Biden's interim goal of net-zero carbon emissions for the power industry by 2035 is unachievable with current technology and potential cost. A 2050 goal is more reasonable.

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.

©2021 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.
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