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
Lamar Advertising Reduces Its Dividend -- The Week in Dividends 2020-05-29
From the DividendInvestor news file this week:

On Thursday, Lamar Advertising LAMR declared a quarterly dividend of $0.50, a 50% reduction from its previous rate. Based on an annual dividend rate of $2.00, Lamar's forward yield now stands at 3.0%.

In the announcement, Lamar's CEO said: "While customer activity has picked up, as we noted when we reported first-quarter results, the trajectory of our business through the remainder of 2020 remains difficult to predict…given that uncertainty, the board concluded that adjusting the dividend for the second quarter is the prudent course of action. We plan to evaluate our dividend plans on a quarterly basis, giving consideration to our liquidity, our leverage and the operating environment that we foresee. We fully intend to honor our obligation as a REIT to pay out at least 90% of our full-year taxable income."

George Metrou will address this development in the upcoming issue of DividendInvestor. Also this week, Omnicom OMC declared a quarterly dividend that was unchanged from its previous payout.

Please see a new analyst update below from Morningstar Research Services for Home Depot HD.

Best wishes,

David Harrell
Editor, Morningstar DividendInvestor

 


News and Research for Dividend Select Portfolio Holdings

Boosting Home Depot's Fair Value
by Jaime M. Katz, CFA | Morningstar Research Services LLC | 05-26-20

We are increasing our fair value estimate for Home Depot HD to $184 from $179 per share after updating our 2020 forecast, which now includes an operating margin estimate of 13.2% versus 14.0% prior. However, we have adjusted our comp forecast up to 4.9% from 3.5%, leading to total revenue growth of more than 5% (versus 3.7% prior), as the firm continues to benefit from its essential business status. This implies a 2020 price/earnings ratio of 19 times and an EV/EBITDA multiple of 13 times.

Given the maturity of the domestic home improvement industry, we expect demand to depend on changes in the real estate market, driven by prices, interest rates, turnover, and lending standards. We project that sales can grow 4% over the next five years, supported by 3.6% average same-store sales increases and helped by offerings like buy online/pickup in-store and better merchandising, which drives market share gains. Longer term, we forecast gross margins to expand modestly over the next decade (by 40 basis points from 2019 levels, to 34.5%) while the selling, general, and administrative expense ratio leverages by 90 basis points (to 17%) and the firm continues to capitalize on its scale and supply chain improvement initiatives. This leads to a terminal operating margin of 16%, higher than the 14.4% achieved in 2019.

We believe Home Depot's operating margins and ROICs could improve as the firm focuses on improvements in speed and efficiency in the supply chain, and the opportunity to better penetrate the pro business with market delivery centers that leverage its delivery capabilities. Additionally, we think Home Depot still has other opportunities to expand the business. It can capitalize on product lines with weak market share leaders -- for example, Sears had been a strong operator in appliances, but as the brand deteriorated (ultimately declaring bankruptcy and embarking on massive store closures), Home Depot was able to steal share. Also, having deeper product lines to cross-sell (with brands like the Company Store offering exposure to textiles) could add incremental revenue potential, with some protection from online competitors such as Amazon, particularly in the maintenance, repair, and operations business. Additionally, the service business backed by a major national brand, as in the acquisition of the commercial business coming from Interline, could build brand loyalty and keep consumers returning to a trusted source, something that could be hard to duplicate by a new entrant.

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.

©2020 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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