About the Editor

Michael Hodel 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.

Michael is portfolio manager for Morningstar Investment Management LLC, a federally registered investment adviser and a wholly-owned subsidiary of Morningstar,Inc. At Morningstar, Mike was a technology strategist for Morningstar, responsible for telecommunications research. He also served as chair of Morningstar's Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. He joined Morningstar in 1998.

Hodel holds a bachelor's degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign and a master's degree in business administration from the University of Chicago Booth School of Business. 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 Joshs Photo
Michael Hodel, CFA
Editor, Morningstar DividendInvestor
Portfolio Manager, Dividend Select Portfolios
Michael Hodel 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 Quiet Week -- The Week in Dividends 2017-12-08
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:

Altria MO, Philip Morris PM, and Verizon VZ all declared quarterly dividends that were (as expected) unchanged from their previous quarterly payouts.

Below is a new analyst note from Morningstar Research Services on tax reform.

Best wishes,

David Harrell
Managing Editor, Morningstar DividendInvestor




News and Research for Dividend Select Portfolio Holdings

Republicans Look Close to Solving U.S. Tax Reform Puzzle
by Damien Conover, CFA | Morningstar Research Services LLC | 12-04-17

As we have long expected, Senate Republicans have passed a "tax reform lite" plan that could bring about lasting changes to the U.S. corporate tax system. While we may modify certain tax-related assumptions in our models, we don't anticipate a material change in our fair value estimates or economic moat ratings, mostly because of various offsetting factors. We believe that tax reform is more likely than not and that the product of the House and Senate's reconciliation in committee will align with our previous assumptions. As a reminder, we had assumed the following in our models: 1) a 25% corporate tax rate beginning in 2018, 2) an election for firms to either fully expense their U.S. manufacturing capital expenditures when made or deduct net interest expense, 3) a deemed repatriation tax of 10% on overseas earnings held in cash, and 4) the elimination of certain special-interest tax provisions.

Our assessment was shaped by our belief that various factions in the Republican Party would ultimately compromise for the sake of a legislative win. Unlike healthcare, changing the tax code has been a closely held goal of the party and its constituents for decades. However, the bill's passage in the Senate does not guarantee that it will become law. Congressional leaders still have to reconcile both the House and Senate versions of the bill when it goes to a joint conference committee next week. Additionally, the Senate bill was passed with a slim 51-49 vote, and there are still confounding factors that bear monitoring, such as the upcoming Senate election in Alabama and special counsel Robert Mueller's investigation into Russian interference in the U.S. presidential election. That said, we think the bill's passage in the Senate significantly raises the likelihood that its core changes will eventually find their way onto President Donald Trump's desk. The bottom line is that tax reform is in the final stages of the legislative process.

There are parts of the Senate bill that are either more positive or more negative to corporate taxation, and consequently valuation, than we had anticipated. The most positive proposal is a reduction of the corporate tax rate to 20% in both the Senate and House bills. This cut in the tax rate to 20% was more aggressive than our 25% assumption, as various members of Congress have eased back from their deficit hawk stance.

Areas in the Senate bill that are more negative to valuation include the timing of the corporate tax cut, the deemed repatriation rate, limit on net operating loss usage, treatment of depreciation, and treatment of net interest expense. While both the Senate and House bills contemplate a 20% corporate tax rate, the Senate's lower 20% rate would not take effect until 2019. Our assumption was in line with the House plan that would have had the corporate tax rate lowered in 2018. We had assumed a deemed repatriation tax rate of 10% on overseas earnings held in cash, but the Senate bill has a rate of 14.49% for cash and cash-equivalent profits, as well as 7.49% for reinvested foreign earnings.

The Senate bill allows 100% expensing of short-lived capital investment, such as equipment and machinery, for five years and a cap on net interest expense. Unlike the House's bill, however, the Senate version phases out the 100% expensing of capital investments provision by 20 percentage points per year thereafter rather than calling for an immediate sunset. The effect is more generous under the Senate plan than the House plan, but less beneficial than under our previous assumption that would have allowed firms to elect the full expensing of manufacturing capital expenditures in perpetuity for giving up their net interest expense deduction. The Senate implemented this phase-out as a way to curtail any intense lobbying efforts that would have occurred because of an immediate cliff. The Senate's version of the bill further restores the corporate alternative minimum tax that is conspicuously absent in the House version. Moreover, in the Senate's bill, beginning in 2023, net operating loss carryforwards would be limited to 80% of taxable income, down from 90% in the House bill and our initial set of assumptions.

The Senate's GOP legislative victory was accompanied by news that former national security advisor Michael Flynn has agreed to cooperate with Mueller's investigation of whether Trump and his administration colluded with members of the Russian government. We reiterate our view that we don't expect this to derail Congress' tax reform efforts, even if the allegations affect the highest levels of government.
 
*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.

©2017 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.

David Harrell may own stocks from the Dividend Select and Dividend Select Deferred portfolios in his personal accounts.
 
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