The Newest Dividend Growth Challengers: Technology

I’m a dividend growth investor, and I’m always on the look out for fundamentally sound businesses that pay rising dividends each year. In the first of this series, “The Newest Dividend Growth Challengers: Healthcare,” I briefly highlighted a few companies who have raised dividends for five straight years. This time I present a pair of technology businesses that are making their first appearance on David Fish’s CCC list.

Could you imagine buying 3M Company (MMM) or Colgate-Palmolive (CL) five years into their 50+ annual dividend increases? The yield on your initial investment would be huge, and you’d have some amazing capital appreciation to go along with it. There’s a lot of elevated risk involved in these newer dividend payers, because they are often much smaller companies and don’t have the long and secure dividend payout history dividend growth investors seek. Not many businesses can accomplish what MMM and CL have over their business lives, and often these Challengers never even make it to the Contenders tab on the CCC list spreadsheet.

J2 Global, Inc. (JCOM)

J2 Global is an internet services company with a leading group of premium brands that connect, inform and empower the world. They primarily operate in two business segments: Cloud Services & Digital Media.

2015_APR_JCOM

2015_APR_JCOM_BUSINESSCLOUDSERIVCESOVERVIEW

2015_APR_JCOM_DIGITALMEDIAOVERVIEW

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J2 Global has achieved incredible successes with how they manage their free capital.

  • Dividend growth rate 3 year average: 14.27%
  • Dividend Payout ratio: 33%
  • 10 year annual revenue growth rate: 17.80%
  • Total Return Last 5 years: 207.63%

2015_APR_JCOM_DEMONSTRATEDTRACKRECORD

2015_APR_JCOM_2014ACCOMPLISHMENTS

For those unfamiliar with fast graphs: The current stock price is the black line, and typically when that black line is in the darker green area below the orange line, the stock is undervalued compared to its earnings. When the black line is below the dark blue line, the price is undervalued compared its normal PE ratio. The white line toward the bottom are the dividends with their specific numbers below that. You’ll also see data such as current dividend yield, market cap, debt, and EPS numbers with percentage changes.

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My Take:

I thought faxing was dead but JCOM proves me wrong with its massive growth rates. I love that this company is so aggressive with acquisitions, making 29 of them in 2014 while anticipating a return on investment of > 20%. I like the story so far, but I can’t really picture the longer term outlook. I didn’t know what the internet was going to turn into 20 years ago and have no idea what it’ll look like in the future let alone how JCOM fits into that. So far JCOM has done great and seems prime to grow… who knows, maybe I’ll look back decades from now and wonder why I wasn’t more interested. For now I’ll pass.

Are you still interested?  Check out this video for more information on the company:

Cisco (CSCO)

Cisco (CSCO) designs, manufactures, and sells internet based networking products and services related to the communications and information technology industry. They have clients of all business sizes, public institutions, telecommunications companies, other service providers, and individuals. Cisco has been changing the way we work, live, play and learn for 30 years. They’ve only paid a dividend since 2011, but raised it every year since.

“We remain focused on shareholder value creation by maintaining the flexibility to make the right long-term strategic decisions for our company, driving efficiencies in our cost structure and returning capital through dividends and share repurchase to our shareholders. During fiscal 2014 we delivered strong operating margins. Additionally, we were very pleased to have substantially exceeded our goal of returning a minimum of 50% of our free cash flow annually to shareholders by returning $9.5 billion through share buybacks and $3.8 billion in dividends, totaling a record $13.3 billion returned to shareholders in the fiscal year.” ~ Cisco 2014 Annual Report

  • Dividend growth rate 3 year average: 49.12%
  • Dividend Payout ratio: 47%
  • 10 year annual revenue growth rate: 10.90%
  • Total Return Last 5 years: 12.87%

2015_APR_FG_CSCO

2015_APR_CSCO DY

My Take:

This is an excellent research candidate that seems to be undervalued at the moment.  Rather than go into more details on this more well known company: Chuck Carnevale, the creator of fast graphs, posted the phenomenal article “Mr. Valuation’s Best Valued Ideas For Retirement And Dividend Growth Portfolios: Cisco” in March; it features interactive fast graphs so you can play around yourself. I highly urge you to read this article.  I happen to like the prospects of Cisco and the internet of things. I’ve considered investing in Cisco for the right price.

Are you still Interested?  Cisco has an awesome YouTube page full of videos about the company.  Here’s a sample:

What do you think about these two technology businesses?

My Dividend Growth

http://www.mydividendgrowth.com

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15 thoughts on “The Newest Dividend Growth Challengers: Technology
  1. JC

    I’ll have to pass on JCOM as well but CSCO is interesting to me. I really liked them a few years back but found other opportunities for my cash. Im working on a stock analysis on CSCO and like what I see. The IoT is promising and I like that their products are more commoditized and less subject to massive technological change wiping them out.

     
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    1. My Dividend Growth

      I’m excited to read your CSCO analysis, I hope you get into the IoT talk in depth. I struggle to see a limit there and am less confident they’ll be safe from technological advances. I always think about people just turning 70 and how much they’ve witnessed in their lifetimes and how unpredictable all of it must have been. I’m becoming less enthusiastic about tech the older I get, but at the same time there are company’s like CSCO who have excellent cash flows to always be an innovating and acquiring the next big ideas. I need to study a lot more on tech. Thanks for the comment!

       
      Reply
  2. roadmap2retire

    Thanks for another brilliant article, Ryan. I like how you are pulling the charts to provide a neat overview of company’s businesses – esp since I am not familiar with JCOM.
    I am quite familiar with CSCO though, as I work in the industry – they went thru a rough patch a coupel of years ago, but have been investing and growing in the right places. Still – theres a lot of new disruptors in the industry stopping me from investing in it.

    Best wishes
    R2R

     
    Reply
    1. My Dividend Growth

      Thanks a ton, R2R 🙂

      JCOM has a great looking fast graph and history of growth but the future is so unpredictable and scary to me. I love that comment: ‘a lot of new disruptions in the industry.’ It’s so true. Technology is such a hard sector to limit risk in and I’ve always been a little uneasy about it. Hopefully the next post will include other more interesting and unique research candidates than these ones. Best wishes!

       
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  3. Vivianne

    Wow, great find with J2, I didn’t know they have so many services. I’ll put j2 on my watch list for the next buying oppotunity. I also thought faxing was dead, but I guess people still use and prefer hard copies.

     
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    1. My Dividend Growth

      Thank you much, Vivianne. There’s no denying JCOM’s solid track record. They seem to be aggressive and wise with acquisitions, which is a quality I like a lot. I also think owning IGN is huge because the video game industry is massive and I like their other digital content offerings. I just have no idea what the long term future looks like for JCOM, which scares me. Thanks for the comment, wishing you a great week ahead!

       
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  4. Dividend Gremlin

    Like that you have another industry centric article up; I also thought faxing was dead. In fact in my consulting job for both private and government work, I have not faxed a thing in years.

    Otherwise, I like Cisco, and I’ve watched them for a while, though they are not currently in my headlights they might be one day.

    -Gremlin

     
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    1. Vivianne

      at my work, they still use it. Real estate document, healthcare document, etc. They pretty still very much old fashion. Some people don’t like sending sensitive information over the internet. It’s also hard for smaller companies to implement electron signing. With recent security breach, people are going backward?

      I know my company spend millions to update and upgrade, but still keep the fax system?!!

       
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      1. My Dividend Growth

        Nice observation, I’d be curious to read more about JCOM’s security features with most services being online. Sounds like there’s a market to tap into there with some sort of safe signing method, maybe JCOM will look into it at some point. Personally I’d love to see certain technologies heading backward again like music records, huge boomboxes and zumba pants.

         
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    2. My Dividend Growth

      Good to hear from you, Gremlin. The one fax I sent in my life was to my brokerage Sharebuilder for a small IRA rollover. I was so confused at how it worked! Looks like JCOM wants to remain one the primary fax businesses, but they’re also doing a lot of good things with their free cash flow to diversify from it. I’m passing on JCOM for now.

      CSCO is very interesting, a lot of great investor’s I follow are recommending it and I really like the direction they’re heading. I have a tough time with technology overall like most, but I think once a tech company gets large enough it can keep reinventing itself. I’d just prefer businesses that don’t have to do that nearly as much. Great job on that physical therapy sector overview again, and have a good week ahead!

       
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  5. DivGuy

    I honestly didn’t know about JCOM! Solid fundamentals but yeah looks like a risky future!

    I’ve always been relatively active in technology. I know some investors fear them a little but I see great opportunities in this sector (just like in almost any actually!) 😉

    Cheers,

    Mike

     
    Reply
    1. My Dividend Growth

      I didn’t know about them either, I think I’ll keep at this series over time because I’m discovering lots of new ideas and I’m bound to find a few for investments. The risk to reward in tech is very appealing. I have room for more in my portfolio as long as it’s a good business that I can somewhat understand. I struggle with limiting my risk in the sector, so I need to keep learning more to get more comfortable. Thanks for the comment!

       
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  6. No More Waffles

    Ryan,

    Big fan of Cisco here as I believe they have a solid business and a very good outlook far into the future. Contrary to many other technology stocks, there’s very little volatility or risk here. They’re supplying the foundations on which the rest of the technology sector is built, much in the same way that IBM and Microsoft have done in the past and still do to a certain extent.

    If American stocks become a little cheaper, I might consider adding it to my portfolio.

    Cheers,
    NMW

     
    Reply
    1. My Dividend Growth

      I’m with you in liking CSCO a lot, NMW. The main prejudice I have toward them is the clunky slow moving switches and routers segment. However, they seem to be doing a great job positioning themselves for future opportunities and I’ll likely hop aboard once those are more clearly defined. I hope American stocks get cheaper so you have more options, that must be crazy hard my friend! I hope all is well and have a great weekend!

       
      Reply
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