About the Editor

David Harrell is the editor of Morningstar DividendInvestor, a monthly newsletter that highlights activities pertaining to a Morningstar, Inc. account invested in accordance with a strategy that takes a concentrated, best-ideas approach when investing in select common stocks of dividend-paying companies and other securities. The strategy seeks firms with wide or narrow moats that we believe are in a stronger competitive position than their peers and that are trading at a reasonable price.

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 LLC. 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 portfolio 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

 
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David Harrell
Editor, Morningstar DividendInvestor
David Harrell is the editor of Morningstar DividendInvestor, a monthly newsletter that highlights activities pertaining to a Morningstar, Inc. account invested in accordance with a strategy that takes a concentrated, best-ideas approach
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A Raise from JPM, TXN and SBUX -- The Week in Dividends 2023-09-22

From the DividendInvestor news file for the past week:

JP Morgan JPM officially declared a new dividend rate of $1.05 per quarter. This represents a raise of 5.0% over the prior rate. Shares of the country’s largest bank now yield 2.9%. Texas Instruments TXN announced a dividend raise of 4.8% to a new payout of $1.30 per quarter. Shares of the semiconductor firm now yield 3.2%. Starbucks SBUX announced a dividend raise of 7.5% to a new payout of $0.57 per quarter. Shares of the coffee chain giant now yield 2.4%.

Please see new analyst notes below from Morningstar Research Services for Altria MO, Philip Morris PM and United Parcel Service UPS.

Best wishes,

Peggy Seemann
Publisher, Morningstar DividendInvestor

News and Research for Dividend Select Portfolio Holdings

Altria Taking a Multipronged Approach To U.S. Nicotine Market
by Philip Gorham, FRM | Morningstar Research Services LLC | 09-19-23

Altria reported second-quarter results that were a whisker below our forecasts, while margins improved slightly, representing a decent performance in light of tighter tobacco regulation in the United States and increasingly challenging macroeconomic conditions. The headline numbers of revenue net of excise tax up 1.5% year over year and earnings per share growth of 4% are representative of what we believe Altria can deliver in the medium term, and we are retaining our $52 per share fair value estimate and our wide moat rating. The current market price offers moderate upside to our valuation, and we think Altria could provide a fairly attractive defensive holding, paying a dividend yield of 8%, although the concentration in the U.S. market may increase risk and volatility relative to competitors such as Philip Morris International and British American Tobacco.

Second-quarter net revenue increased by 1.2% year over year, a sequential improvement from the modest decline in the first quarter. As usual, this was driven by price increases, and volume was again weak. In this vein, cigarette volume fell by 8.7% in the second quarter, with the discount segment particularly weak, down 24.4%. These figures were slightly better than those of the first quarter, despite the flavor ban in California coming into effect. We expect this will have slight drag on volume throughout the rest of the year, but on the evidence of the second quarter, it will not throw volume too far off its recent trend. The sharp decline in the discount segment appears to be an industrywide trend and indicates that low-income consumers are quitting cigarettes at faster rates than higher-income consumers are trading down.

Swedish Match Should Provide PMI With a Distribution Platform for iQOS in the U.S.
by Philip Gorham, FRM | Morningstar Research Services LLC | 09-21-23

Philip Morris International, or PMI, reported second-quarter results that were modestly above our expectations, due to robust volume in the core combustible segment. On top of low-double-digit organic net revenue growth, subsidiary Swedish Match made a significant contribution to reported year-over-year revenue growth of 1.5%. We are retaining our $103 fair value estimate and wide moat rating. PMI is trading close to this valuation, and we believe a more attractive risk/return profile exists in some of the slightly-lower-quality tobacco companies such as Imperial Brands and British American Tobacco, but these results again confirm that PMI's valuation premium to peers is justified, and PMI may prove to be more defensive than most in the event of global macroeconomic deterioration.

PMI's second-quarter organic revenue growth of 10.5% was driven by a 9% pricing increase and 26.6% growth in heated tobacco unit volume, with this unit now representing 13% of total tobacco volume. This was supported by a lower-than-expected combustible volume decline of just 0.4%. Management believes industry volume in its footprint declined by 2.1% in the second quarter, implying some share gains, but the company's volume decline may reaccelerate later in the year. Nevertheless, this was a respectable quarter, given the rising pressure on consumers in most markets.

Swedish Match made a strong start under the ownership of PMI, and the acquisition was accretive to reported growth. On a pro forma basis, oral product shipment volume (primarily Swedish Match's Zyn brand) increased 13.8%, most likely boosted by greater distribution on the PMI platform, but also indicative of the ongoing growth of the category. In our opinion, PMI has the strongest portfolio of noncigarette brands, with Zyn in oral tobacco and iQOS in heated tobacco, and this should help it manage the impact of volume decline in cigarettes.

Domestic Package Diversions and Costly Union Contract to Strain UPS' Near-Term Results
by Matthew Young | Morningstar Research Services LLC | 09-22-23

UPS' second-quarter top line fell 11% year over year (removing foreign exchange); below our forecast, largely from lost U.S. domestic package volumes as shippers diverted freight ahead of a threatened Teamsters strike. Relative to second-quarter 2022, the revenue decline stems from lower overall package volumes, rate and demand normalization for the truck brokerage and global forwarding operations, and now-falling fuel surcharges. That said, core pricing remains positive, which we expect to persist.

Total average daily package volume declined 9% on domestic U.S. package diversions (reflecting shipper concern over union negotiations), retailer inventory destocking, soft U.S. industrial production, and less-robust macroeconomic conditions across Europe. On the positive side, our 2024 volume forecasts will likely assume UPS can regain a large swath of diverted package volumes in the year ahead given that a new labor agreement was secured in July.

Not surprisingly, total adjusted operating margin contracted year over year on lost operating leverage, though adjusted U.S. domestic margin exceeded our forecast on solid cost execution. However, full-year domestic margin guidance of 10% came in worse than we anticipated as a result of the newly secured union agreement, which will yield higher-than-expected wage inflation.

We will be lowering our 2023 U.S. domestic margin forecast by about 100 basis points to account for higher wage inflation and lost volumes, though we have confidence that network adjustments, core pricing gains, and volume recovery will help provide a material offset in the years ahead. Thus, we don't expect to temper our 2024 and 2025 margin forecasts as much. Our model adjustments will likely have a slight downward impact on our $177 fair value estimate, but we expect much of that to be offset by the time value of money. The shares look appropriately valued relative to our longer-term free cash flow growth assumptions.

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.

©2023 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® DividendInvestor℠, 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. and/or, where applicable, its affiliates.

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.

Peggy Seemann does not own stocks from the Dividend Select Portfolios in her personal accounts.

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The Dividend Select and Dividend non-MLP Select strategies are managed by Morningstar Investment Management LLC. Morningstar Investment Management’s subsidiary offers these strategies through a discretionary investment advisory service (“Advisory Service”). The "Net of Fees" performance shown reflects the deduction of a model fee equal to the maximum advisory fee that could be charged to the strategy through Morningstar Investment Services’ advisory program, brokerage or other commissions, and other expenses that a client paid in connection with the advisory services they received, and are calculated by deducting these fees from the gross returns.

 
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Contact Your Editor
 
About the Editor


David Harrell is the editor of Morningstar DividendInvestor, a monthly newsletter that highlights activities pertaining to a Morningstar, Inc. account invested in accordance with a strategy that takes a concentrated, best-ideas approach when investing in select common stocks of dividend-paying companies and other securities. The strategy seeks firms with wide or narrow moats that we believe are in a stronger competitive position than their peers and that are trading at a reasonable price.

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 LLC. 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 portfolio 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


This strategy takes a concentrated, best-ideas approach when investing in select common stocks of dividend-paying companies and other securities such as American Depositary Receipts, master limited partnerships, and real estate investment trusts. It seeks firms with wide or narrow moats that we believe are in a stronger competitive position than their peers and that are trading at a reasonable price.