Please see page 14-15 of this report for Important Disclosures, Disclaimers and Analyst
Diversified Stock
Income Plan
April 2013
Quarterly Review
The Diversified Stock Income Plan (DSIP) is a closely monitored list of stocks chosen because of the likelihood of the companies to consistently raise annual dividends. Our goal is to find stocks with attractive current yields that have the potential to provide a growing stream of income over time while taking into consideration company fundamentals. The stocks on the list are categorized according to market sector to facilitate construction of a well-diversified portfolio across various industries. With a package of such stocks, we are seeking a relatively low risk way to help conservative income and growth-oriented equity investors to potentially keep up with the rising cost of living.
Primary DSIP objectives
Our main objective in DSIP is to provide a list of stocks from a variety of different industries across all ten Standard & Poor’s (S&P) market sectors that we think have the potential to increase dividends with regularity, and that allow investors to build a well-diversified portfolio of dividend growth stocks. Other objectives include:
1) Potentially provide a higher stream of income over time. With a diversified package of stocks that we believe have the potential to raise their dividends with regularity, conservative, income and growth-oriented equity investors should have the potential to keep up with the rising cost of living. To help achieve this goal of a growing income stream, we recommend that investors plan to hold these stocks for an extended period, typically a minimum of five years.
2) Help to modify risk through diversification. A well-constructed portfolio typically contains stocks from different market sectors. Studies have shown that stocks in as few as six sectors with different investment characteristics can help reduce a portfolio's risk, as measured by standard deviation, to roughly that of the marketplace in which the stocks are traded. (Standard deviation measures the volatility of stock prices.) Please see Figure 1 for general diversification guidelines. 3) Keep you informed about these stocks through your financial advisor. We notify our financial
advisors whenever a stock on the DSIP list raises or lowers its dividend, if we add a stock to or delete a stock from the list, or if any other significant events occur. We also publish quarterly and annual updates summarizing activity in the Diversified Stock Income Plan as well as other reports on topics of interest.
Figure 1 – Diversification Guidelines
Roughly 20 to 30 stocks in at least six to eight sectors with different investment characteristics;
No more than 20% of the total portfolio value in any one sector;
No more than 10% of the total portfolio value in any one stock;
Although diversification is an important tool for helping to reduce risk, having a large number of individual stocks in your portfolio makes it increasingly difficult to monitor each security’s progress. Diversification does not guarantee a profit or protect against loss in a declining market.
Source: Wells Fargo Advisors
Commentary from ASG's Equity
Sector Generalists
No one has control over what stock prices do. But, if we can invest in companies for which we have reasonable confidence that their products and services will remain in demand in both difficult and favorable economic times, thereby having the potential to consistently increase earnings and dividends, over time stock prices should have the potential to increase also. In addition, rising dividends have historically tended to cushion the fall of stock prices in challenging markets. If one can lose less money in down markets, one shouldn’t have to work as hard to make it back in up markets. Obviously there are no assurances that stock prices will rise or that dividend income will increase, so it's important to realize that stock prices could drop and dividends could be reduced or eliminated.
History has shown that investing in stocks of good quality companies has been an important strategy designed to help investors build wealth over time, although there is no guarantee that this will be the case going forward. Getting paid cash dividends up to four times a year with the prospect of dividend increases at least once a year from a properly diversified portfolio should, we hope, help investors get in and stay in the market to participate in the wealth-building potential of good quality common stocks, even in uncertain or volatile markets. We consider the potential for consistent dividend increases to be tangible evidence of the high caliber of the companies on the DSIP list. The DSIP strategy emphasizes owning pieces of great businesses. Try to ignore the stock market and instead focus on the companies, many of which have products or services that most readers know and patronize, and that pay growing dividends while waiting for stock prices to reflect the direction of earnings over the long term.
Our analysts have scrutinized the dividend stability and long-term growth potential for every company on the list. The DSIP list, therefore, includes only the stocks of those companies for which we believe the likelihood for regular dividend increases is high and which we consider appropriate for long-term income and growth-oriented investors with a multi-year investment horizon.
Some investors can be cavalier about dividend growth but, in fact, it is no small feat for a company to be able to increase its dividend with regularity. As shown in Figure 2, the number of dividend increases from a broad universe of publicly traded companies decreased substantially from a peak in 2006 to the trough in 2009. Over that period, the number of dividend increases declined from 1,969 to 699, a reduction of 64%. Over that same time period, the number of dividend cuts and omissions rose dramatically from 87 to 804, an increase of over 800%!
Figure 2 – Standard & Poor’s Dividend Action Report
Dividends can be increased, decreased or totally eliminated at any point without notice. Sources: Standard & Poor’s, Wells Fargo Advisors
Increases Decreases & Omissions
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan 197 200 222 199 178 82 86 136 188 263 5 2 1 5 20 92 17 9 14 44 Feb 191 239 237 246 204 85 135 181 241 298 7 6 9 7 24 131 18 8 10 22 Mar 120 155 167 176 93 26 63 96 123 171 5 7 7 7 39 144 13 13 7 73 Apr 159 179 191 182 157 59 105 127 156 7 2 3 6 28 113 16 8 9 May 124 162 178 160 130 54 94 166 160 4 10 6 5 33 84 13 8 14 June 104 120 114 106 65 34 52 66 66 8 9 5 7 36 53 5 5 14 July 167 151 133 142 128 54 81 115 130 5 1 12 5 35 46 14 6 7 Aug 118 132 155 134 92 51 87 108 145 10 7 9 6 43 41 9 9 21 Sept 106 108 89 80 44 34 42 50 73 3 14 4 10 60 26 12 8 25 Oct 150 155 158 159 97 87 119 140 165 0 10 8 7 81 19 11 8 31 Nov 142 182 171 153 71 75 137 143 197 5 6 18 22 106 34 9 10 28 Dec 167 166 154 120 51 58 86 106 124 5 10 5 23 101 21 8 9 95 Year 1,745 1,949 1,969 1,857 1,310 699 1,087 1,434 1,768 732 64 84 87 110 606 804 145 101 275 139 Q1 508 594 626 621 475 193 284 413 552 732 17 15 17 19 83 367 48 30 31 139 % Change 17% 5% -1% -24% -59% 47% 45% 34% 33% -12% 13% 12% 337% 342% -87% -38% 3% 348%
Looking a bit more narrowly at just the companies in the S&P 500 index (see Figure 3), one can see that in 1980, 469 of the 500 companies (94%) paid some kind of dividend. The percentage of dividend payers dropped steadily until 2001-02, when this metric hit a low with just 351 of the S&P 500 members (70%) paying a dividend; coincident with the peak in the market’s “tech bubble”. The percentage of dividend payers steadily rebounded from the 2002 lows to 78% in 2007 (390/500), before declining again in the 2007-09 recession. In the current low interest rate environment, where dividend income has become increasingly popular with investors, the number of dividend payers and dividend growers now exceeds the 2007 level. But, in our opinion, it will likely take some time to return to the prior (1980) peak. Figure 3 – S&P 500 Dividend Payers
Sources: Standard & Poor’s, Wells Fargo Advisors DSIP list criteria
The analysts who choose stocks for DSIP utilize a disciplined philosophy and methodology that focuses upon finding companies that:
appear fundamentally sound (i.e., in solid financial condition with investment grade debt, if they have debt),
have historically paid dividends well-covered by free cash flow,
operate generally mature, defensive businesses (i.e., providing products or services that customers tend to patronize in all kinds of economic environments), and
most importantly, offer the potential to consistently raise their annual dividends.
We prefer companies that pay cash dividends out of after-tax earnings. Rarely are we attracted to companies that maintain or increase their dividends through the use of money either borrowed or generated from activities outside the company’s primary business of producing goods or services. We look for companies that, in addition to increasing their earnings year after year, also generate growth in “free” cash flow, or more cash than is required by the company to pay its bills (e.g., wages, raw material costs, advertising expenses, taxes, etc.), maintain its property, plant and equipment, etc.
It is our primary objective to add only what we believe are the highest quality companies with the potential for consistent annual dividend growth; and then to patiently hold them for an extended period of time, throughout economic and market cycles, selling only if the fundamental characteristics of the
2013: 406, 81% 60% 65% 70% 75% 80% 85% 90% 95% 300 320 340 360 380 400 420 440 460 480 500 19 80 19 82 19 84 19 86 19 88 19 9 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 20 10 20 12
company have changed materially, and presumably permanently for the worse. Consequently, we are not likely to include every stock within a particular market sector that meets the basic criteria for inclusion on the DSIP list. We aim to include on the DSIP list only those companies that are clear industry leaders, and those with the strongest financial condition and outlook for sustainable dividend growth.
Figure 4 – DSIP Sector Diversification (Q1 2013)
Source: Wells Fargo Advisors
Proper diversification is extremely important
It is our opinion that a properly diversified DSIP portfolio should contain companies from a number of different sectors, and different business types within the sectors. Diversification does not guarantee a profit or protect against loss. It can, however, help reduce the volatility of a portfolio as measured by its standard deviation. The sector weightings of the DSIP list at the end of the March 2013 quarter are presented in Figure 4 above.
Investors looking for high current income may find better yields than DSIP has to offer in fixed-income securities or other investment types. But, to capture the potential for growing income, it is typically necessary to consider dividend paying equities as part of an overall asset allocation strategy. For DSIP purposes, we consider a stock that offers merely a good dividend yield but has no potential for dividend growth to be a relatively unattractive investment. A high-quality bond with a similar yield may offer a better return with less risk.
We understand the thirst for yield, but advise caution against confining a portfolio to only the highest yielding investments. Remember that yields significantly greater than the prevailing rate on U.S.
Treasury securities frequently signal a higher degree of risk, including the risk that the dividend may not be sustainable.
Some investors are comfortable owning only one kind of stockperhaps a company or industry they know well or a group which, in the past, has been fairly stable and predictable in its results, such as utility stocks. Utilities, after all, have typically enjoyed a dependable cash flow stream because customers in its service territory write a check each month in order to receive the service the utility provides. Regulatory changes, however, and other competitive factors have affected the monopoly status of local utilities, further emphasizing the need for selectivity in investment choices, and the wisdom of diversifying beyond utility stocks.
Consumer Discretionary 8.1% Consumer Staples 17.6% Energy 8.1% Financials 8.1% Health Care 10.8% Industrials 10.8% Information Technology 13.5% Materials 6.8% Telecommunication Services 1.4% Utilities 13.5%
Removing stocks from the DSIP list
Most successful stock investors set emotions aside, and seek to patiently build wealth over time. Our hope is that through a very disciplined process for adding stocks to the DSIP list, we rarely have to consider their removal. However, companies evolve and markets are dynamic, sometimes requiring that we remove a stock from the list. The main reason we will remove a stock is because we are no longer comfortable with the company’s prospects for consistent dividend growth. This will typically happen when the criteria we look at to add a stock begin to deteriorate, or are expected to do so. Examples would include an unsustainably high payout ratio (dividends/earnings per share), prolonged weakness in earnings growth, or deteriorating balance sheet strength. We rarely remove a stock solely for valuation reasons, although we are not opposed to clients strategically realizing capital gains in particular stocks if and when it makes sense in individual portfolios.
DSIP is suitable for many investors
The Diversified Stock Income Plan is considered appropriate for long-term conservative equity investors seeking some income and growth from their equity portfolios. It may also be appropriate for more aggressive investors who prefer to keep a portion of their portfolios in more conservative equity securities. Young investors can potentially benefit from decades of dividend growth and reinvestment. Investors looking to build or rebuild their retirement accounts may find the DSIP strategy appropriate. Retired individuals may benefit from the possibility of receiving annual dividend increases. The decision as to whether a particular security is suitable for an individual client’s portfolio should be made by investors and their financial advisors, with full consideration given to existing portfolio holdings. Consider dividend reinvestment
One way to potentially enhance total return is to reinvest cash dividends to buy more shares of stock. A dividend reinvestment program allows for automatic reinvestment of dividends into additional shares of the stock. If the dividends are reinvested on a day when the share price is low, more shares are purchased. A systematic investment plan does not guarantee a profit or protect against loss in a declining market, and investors should consider their ability to continue investing through periods of low price levels. If the dividends are reinvested on a day when the share price is high, fewer shares are purchased. We believe investors who reinvest dividends, as well as investors who want to initiate or add to stock positions, should welcome market pullbacks. Ask your financial advisor about dividend reinvestment, a service that allows you to more fully take advantage of the growth potential of your dividend income.
We realize that you might choose to take delivery of cash dividends. Please understand, however, that you will not have the opportunity to take advantage of the compounding effect of dividend reinvestment, which will affect your total return.
Investment risks
As with any investment strategy, there are risks associated with investing in DSIP stocks. There will be times when dividend paying stocks are out of favor relative to other investment themes. For example, coming out of a recession, stocks that are more cyclically tied to a rebound in economic growth may outperform the generally defensive names on the list. As DSIP stocks are predominantly large-cap in nature, there will be times when small company stocks outperform those on the DSIP list. Our methodology for choosing DSIP list stocks focuses on high quality dividend growers. For various reasons, some market sectors will have more companies that meet the DSIP criteria for inclusion than others (e.g. utilities). Consequently, there will be times when the market favors sectors not as heavily represented on the list as others. In general, the defensive nature of the DSIP list tends toward underperformance in rapidly rising markets, and relative outperformance in down markets, given the downside cushion provided by rising dividends.
Additions to the DSIP list – Q1 2013
There were no additions to the DSIP list during the first quarter. Deletions from the DSIP list – Q1 2013
On February 1, we removed the shares of Johnson Controls Inc. (JCI) from the DSIP list due to our decreased confidence in the company’s ability to provide consistent annual dividend growth.
Overall, Johnson Controls’ financial position has deteriorated. As of the end of 2012, JCI’s net debt to total equity was 52% compared to the company’s 5-year average of 39%. Higher debt levels are a function of weak business conditions and higher capital requirements. Capital expenditures, typically $600-800 million per year, ballooned to $1.3 billion in 2011 and $1.8 billion in 2012. Internal operational issues and global economic weakness combined with higher capital expenditures have produced negative free cash flow for fiscal years 2011 and 2012.
Dividend tally – Q1 2013
In Figure 5, we list chronologically the dividend increases announced during Q1 2013. Over the course of the quarter, 25 companies on the DSIP list announced 26 dividend increases. The average of the 26 total DSIP dividend increases was 11.2% on an annualized basis.
In Figure 6, we present the average dividend increase by year for the DSIP list and the S&P 500, as well as the corresponding inflation rate as measured by changes in the Consumer Price Index (CPI). Clearly, the average DSIP dividend increase over this time period has outpaced the change in CPI. Although past performance does not guarantee future results, we believe that holding a diversified portfolio of DSIP stocks can be a viable strategy to help investors potentially stay ahead of the rising cost of living. Figure 5 – DSIP Dividend Increases (Q1 2013)
Company Symbol
Declaration
Date Record Date Payable Date
New Annual Dividend Rate Year Earlier Annual Dividend Rate Annualized Increase Q1 2013
AptarGroup, Inc. ATR 1/17/13 1/30/13 2/20/13 $1.00 $0.88 13.6%
Praxair, Inc. PX 1/23/13 3/7/13 3/15/13 $2.40 $2.20 9.1%
Realty Income Corp. O 1/23/13 2/1/13 2/15/13 $2.17 $1.75 24.1% Energen Corporation EGN 1/23/13 2/15/13 3/1/13 $0.58 $0.56 3.6% Polaris Industries Inc. PII 1/31/13 3/1/13 3/15/13 $1.68 $1.48 13.5% Northeast Utilities1 NU 2/5/13 3/1/13 3/15/13 $1.47 $1.17 25.1%
3M Co. MMM 2/5/13 2/15/13 3/12/13 $2.54 $2.36 7.6%
Teva Pharmaceutical Industries Inc. TEVA 2/7/13 2/21/13 3/7/13 $1.24 $1.03 20.8% Commerce Bancshares, Inc. CBSH 2/8/13 3/6/13 3/25/13 $0.90 $0.876 2.7% Jack Henry & Associates, Inc. JKHY 2/11/13 2/26/13 3/12/13 $0.52 $0.46 13.0% Owens & Minor, Inc. OMI 2/12/13 3/15/13 3/29/13 $0.96 $0.88 9.1% Sigma-Aldrich Corp. SIAL 2/13/13 3/1/13 3/15/13 $0.86 $0.80 7.5% United Parcel Service Inc. UPS 2/14/13 2/25/13 3/12/13 $2.48 $2.28 8.8% NextEra Energy, Inc. NEE 2/15/13 3/1/13 3/15/13 $2.64 $2.40 10.0% Analog Devices, Inc. ADI 2/19/13 3/1/13 3/12/13 $1.36 $1.20 13.3% SCANA Corporation SCG 2/20/13 3/11/13 4/1/13 $2.03 $1.98 2.5% Wal-Mart Stores, Inc. WMT 2/21/13 3/12/13 4/1/13 $1.88 $1.59 18.2% Kimberly-Clark Corp. KMB 2/21/13 3/8/13 4/2/13 $3.24 $2.96 9.5%
Novartis AG NVS 2/23/13 2/28/13 4/5/13 $2.53 $2.48 2.0%
Nordstrom, Inc. JWN 2/27/13 3/11/13 3/22/13 $1.20 $1.08 11.1% The Chubb Corporation CB 2/28/13 3/15/13 4/2/13 $1.76 $1.64 7.3% Piedmont Natural Gas Co. PNY 3/6/13 3/25/13 4/15/13 $1.24 $1.20 3.3% General Dynamics Corp. GD 3/6/13 4/12/13 5/10/13 $2.24 $2.04 9.8% General Mills Inc. GIS 3/12/13 7/10/13 8/1/13 $1.52 $1.32 15.2% Realty Income Corp.2 O 3/14/13 4/1/13 4/15/13 $2.175 $1.7535 24.0% Air Products & Chemicals Inc. APD 3/21/13 4/1/13 5/13/13 $2.84 $2.56 10.9%
1 NU increased its dividend after 3 quarters. The increase over the previous quarter is 7.1%. 2 O increased its dividend after 2 months. The increase over the previous month is 0.2%.
Figure 6 – DSIP and S&P 500 Dividend Changes & Inflation
Source: Federal Reserve Bank of St. Louis, Standard & Poor’s, Wells Fargo Advisors
Important Q1 DSIP list developments
On January 31, Royal Dutch Shell plc (RDS.B) announced plans to increase its dividend by 4.7% starting with the dividend to be declared in May. The new rate is expected to be $0.90 per quarter ($3.60 per year) compared to $0.86 per quarter ($3.44 per year) currently.
On February 14, PepsiCo Inc. (PEP) announced plans to increase its dividend by 5.6% starting with the dividend to be declared in June. The new rate is expected to be approximately $0.57 per quarter ($2.27 per year) compared to $0.5375 per quarter ($2.15 per year) currently.
DSIP dividend payout ratios for 2012
In Figure 7, we present dividend payout ratios for DSIP list companies and longer term averages. Payout ratio (PO) is an important metric analyzed and monitored by the DSIP team. Calculated as dividends divided by earnings (dividends/net income), the payout ratio measures the percentage of a company’s net earnings paid out to its shareholders in the form of dividends. Perhaps the most convenient way for investors to make this calculation on their own is to divide dividends per share by earnings per share (DPS/EPS). For example, a company that pays a dividend of $1.00 per share, on earnings of $5.00 per share, the payout ratio is 20% ($1.00/$5.00). Figure 7 illustrates the payout ratio for the companies currently on the DSIP list for the most recent fiscal year reported (2012 for most), along with average payout ratios for the prior 3-year, 5-year and 10-year periods.
There is no “right or wrong” number when it comes to gauging a specific company’s, industry’s or market sector’s payout ratio. Each is somewhat unique with regard to the allocation of capital among the many
DSIP S&P 500
Dividend Dividend CPI Year Change Change Change
1994 8.6% 4.8% 2.6% 1995 7.1% 4.6% 2.5% 1996 7.3% 8.0% 3.4% 1997 8.0% 4.0% 1.7% 1998 8.4% 4.6% 1.7% 1999 8.1% 1.7% 2.7% 2000 9.2% -3.1% 3.4% 2001 8.4% -1.4% 1.6% 2002 7.3% 2.1% 2.4% 2003 11.5% 8.2% 1.9% 2004 13.8% 11.8% 3.3% 2005 11.6% 14.4% 3.4% 2006 16.3% 11.9% 2.5% 2007 16.2% 9.4% 4.1% 2008 11.3% 4.2% 0.1% 2009 1.9% -21.0% 2.7% 2010 9.8% 1.5% 1.4% 2011 12.1% 16.2% 3.0% 2012 11.4% 18.2% 1.7% Average: 9.9% 5.3% 2.4%
competing alternatives (e.g., dividends, share repurchase, capital expenditures, acquisitions, etc.). From the standpoint of the DSIP strategy, and our primary focus on rising dividends, the lower the payout ratio the better, all other things equal, to allow for growth potentially in both the dividend and the payout ratio itself over time. DSIP analysts often use 50% as the maximum payout ratio that we normally like to see; but as shown in Figure 7, a number of companies (e.g., McDonalds, Kimberly Clark, Paychex) and industries (e.g., utilities) routinely exceed the largely arbitrary 50% payout barrier, and are comfortable doing so given the consistency of their earnings growth and free cash flow over time. Most companies have developed a range for their payout ratios with which they are comfortable, and these ranges are usually well-communicated to investors via quarterly conference calls, investor presentations, etc. A rising payout ratio can be a sign of trouble brewing within a company, particularly as the ratio gets closer to 100%. A company with a very high, and rising payout may be experiencing earnings shortfalls, and may be starving other parts of the business for capital needed to maintain its dividend. On the other hand, a rising payout may simply reflect an intentional effort on the part of a company’s Board of
Directors to return a higher percentage of earnings to its shareholders in the form of cash dividends. There is typically little or no divergence in the dollar amount of dividends reported, and actual cash paid out, i.e. cash dividends paid per share are a “fact”. Earnings, on the other hand, often bear little
resemblance to actual net cash generated to pay dividends, given the plethora of non-cash accruals, adjustments, etc. (e.g. deferred taxes, depreciation, asset write-offs) that can impact reported EPS; i.e. earnings might better be classified as “opinions”, subject to wide interpretation and adjustment. As such, an unusually high payout ratio for a company in any given year may simply reflect an EPS number weighed down by non-recurring events (e.g., a write down of goodwill, an intangible asset on the balance sheet). After analyzing two separate data sources, with often vastly different EPS figures as the
denominator of the payout ratio, Figure 7 represents the more conservative (i.e., higher payout) of the two data sets in our opinion.
Real Estate Investment Trusts (REITs) will by definition report high payout ratios, as they are required to payout at least 90% of their net income to shareholders as dividends in order to qualify and maintain their tax advantaged REIT status. Note the payout ratios for Realty Income Corp. (O), the only REIT on the DSIP list (see the Financial sector in Figure 7) at this time. In addition, payout ratios for REITs are typically calculated as dividends divided by “funds from operations (FFO)”, a measure of cash flow as opposed to earnings.
How can you participate?
If you would like to read more about the concept of investing in stocks with the potential for rising dividends to enhance total return, ask your financial advisor for our report titled The Importance of Total Return.
There is more than one way to participate in the DSIP strategy. Your financial advisor can help you choose the way that is best for you.
Figure 7 – DSIP Payout Ratios (%)
1-yr 3-yr 5-yr 10-yr
Consumer Discretionary
Lowe's Cos. LOW 37 34 31 20
McDonald's Corp. MCD 54 50 49 46
Nordstrom Inc. JWN 30 29 31 25
Polaris Industries Inc. PII 34 33 39 38
Target Corp. TGT 31 27 24 19 VF Corp. VFC 31 37 42 37 average: 36 35 36 31 Consumer Staples Brown-Forman Corp. Cl B BF.B 38 35 37 36 Clorox Co. CLX 59 68 60 50 Colgate-Palmolive Co. CL 47 47 44 44
Costco Wholesale Corp. COST 26 27 26
-General Mills Inc. GIS 52 47 45 44
Kellogg Co. K 65 54 50 48
Kimberly-Clark Corp. KMB 67 65 61 56
McCormick & Co. Inc. MKC 41 40 41 41
PepsiCo Inc. PEP 54 51 50 44
Procter & Gamble Co. PG 58 53 49 45
J.M. Smucker Co. SJM 47 44 41 42
Sysco Corp. SYY 56 53 52 47
Wal-Mart Stores Inc. WMT 32 30 30 26
average: 49 47 45 44
Energy
ConocoPhillips COP 41 32 39 26
Chevron Corp. CVX 26 26 30 30
Energen Corp. EGN 18 15 14 15
Phillips 66 PSX - - -
-Royal Dutch Shell PLC ADS RDS.B 40 41 48 41
Exxon Mobil Corp. XOM 22 24 26 25
average: 29 28 31 27
Financials
AFLAC Inc. AFL 22 25 29 24
Brown & Brown Inc. BRO 27 28 27 22
Chubb Corp. CB 29 26 25 23
Commerce Bancshares Inc. CBSH 33 33 38 34
Eaton Vance Corp. EV 45 45 46 40
Realty Income Corp. O 86 89 90 86
average: 40 41 43 38
Health Care
Abbott Laboratories ABT 45 56 52 58
Baxter International Inc. BAX 38 40 36 40
Becton Dickinson & Co. BDX 32 29 28 28
Johnson & Johnson JNJ 62 57 51 45
Novartis AG ADS NVS 50 51 45 40
Owens & Minor Inc. OMI 51 45 42 38
Stryker Corp. SYK 27 23 18 14
Teva Pharmaceutical Industries Ltd. ADS TEVA 36 26 33 29
Figure 7 – DSIP Payout Ratios (%, continued)
Source: FactSet, Wells Fargo Advisors
1-yr 3-yr 5-yr 10-yr
Industrials
3M Co. MMM 37 37 40 39
Emerson Electric Co. EMR 60 50 49 49
General Dynamics Corp. GD 30 26 25 24
W.W. Grainger Inc. GWW 32 30 29 28
Illinois Tool Works Inc. ITW 24 34 41 33
Norfolk Southern Corp. NSC 36 34 36 28
United Parcel Service Inc. Cl B UPS 50 53 61 50
United Technologies Corp. UTX 37 36 34 30
average: 38 37 39 35
Information Technology
Accenture PLC ACN 39 34 31
-Analog Devices Inc. ADI 54 41 52
-Automatic Data Processing Inc. ADP 55 56 53 45
FactSet Research Systems Inc. FDS 29 29 28 22
Harris Corp. HRS 24 22 21 21
Intel Corp. INTC 41 35 47 37
International Business Machines Corp. IBM 23 22 22 19
Jack Henry & Associates Inc. JKHY 25 25 25 24
Microsoft Corp. MSFT 38 28 28 25
Paychex Inc. PAYX 84 86 87 72
average: 41 38 40 33
Materials
Air Products & Chemicals Inc. APD 51 44 45 43
AptarGroup Inc. ATR 37 31 31 26
Ecolab Inc. ECL 35 34 33 31
Praxair Inc. PX 39 41 40 36
Sigma-Aldrich Corp. SIAL 21 20 20 20
average: 37 34 34 31
Telecommunication Services
AT&T Inc. T 76 68 71 76
average: 76 68 71 76
Utilities
MDU Resources Group Inc. MDU 50 54 49 40
National Fuel Gas Co. NFG 55 50 59 59
New Jersey Resources Corp. NJR 69 59 54 54
NextEra Energy Inc NEE 53 48 47 49
Northeast Utilities NU 71 56 53 59
Piedmont Natural Gas Co. PNY 72 67 67 69
SCANA Corp. SCG 63 64 64 62
South Jersey Industries Inc. SJI 56 56 55 52
Southern Co. SO 73 74 76 73
Wisconsin Energy Corp. WEC 51 46 43 42
average: 61 57 57 56
Appendix – DSIP list as of 3/31/2013
Est Est Dividend
Annual Annual Increases Consecutive
3/31/13 Annual Market Div EPS Date Since Annual
Price Div Yield Cap Growth Growth* Added Pay Added Increases for
Ticker ($) ($) (%) (mil$) (%) (%) To DSIP Cycle to DSIP Company
CONSUMER DISCRETIONARY
Nordstrom Inc. JWN 55.23 1.20 2.2 10,880 7 11 4/17/06 Mar 6 4
Lowe's Companies Inc. LOW 37.92 0.64 1.7 42,091 8 17 9/14/12 Feb 0 50
McDonald's Corporation MCD 99.69 3.08 3.1 99,959 8 9 9/16/04 Mar 8 36
Polaris Industries PII 92.49 1.68 1.8 6,349 8 18 11/8/02 Feb 11 18
Target Corporation TGT 68.45 1.44 2.1 44,170 7 12 6/20/06 Mar 6 41
V.F. Corporation VFC 167.75 3.48 2.1 18,487 7 11 10/3/08 Mar 4 40
CONSUMER STAPLES
Brown-Forman Corp. BF.B 71.40 1.02 1.4 15,252 7 12 5/31/07 Jan 6 29
Colgate-Palmolive Company CL 118.03 2.72 2.3 55,222 8 9 9/16/05 Feb 8 50
Clorox CLX 88.53 2.56 2.9 11,585 6 8 9/16/05 Feb 8 36
Costco Wholesale Corp. COST 106.11 1.10 1.0 46,300 8 13 6/25/08 Feb 4 7
General Mills Inc. GIS 49.31 1.52 3.1 31,770 6 7 6/25/08 Feb 6 10
Kellogg K 64.43 1.76 2.7 23,276 6 8 4/3/06 Mar 7 8
Kimberly-Clark KMB 97.98 3.24 3.3 38,144 6 9 11/3/99 Jan 14 41
McCormick & Company Inc. MKC 73.55 1.36 1.8 9,745 8 9 5/31/07 Jan 6 27
PepsiCo Inc. PEP 79.11 2.15 2.7 122,146 6 8 8/10/94 Mar 18 40
Procter & Gamble Company PG 77.06 2.25 2.9 210,501 6 9 11/23/98 Feb 14 56
Smucker (J.M.) Company SJM 99.16 2.08 2.1 10,757 7 9 10/3/08 Mar 5 15
SYSCO Corporation SYY 35.17 1.12 3.2 20,587 4 10 2/6/97 Jan 17 43
Wal-Mart Stores WMT 74.83 1.88 2.5 247,987 6 9 9/21/04 Jan 9 39
ENERGY
ConocoPhillips COP 60.10 2.64 4.4 73,323 4 -2 10/30/02 Mar 9 0
Chevron Corporation CVX 118.82 3.60 3.0 231,307 4 1 4/22/02 Mar 11 25
Energen Corporation EGN 52.01 0.58 1.1 3,748 4 12 8/24/94 Mar 19 31
Phillips 66 PSX 69.97 1.25 1.8 43,629 5 6 5/2/12 Mar 2 0
Royal Dutch Shell plc § RDS.B 66.82 3.44 5.1 87,458 3 4 6/18/12 Mar 9 1
Exxon Mobil Corporation XOM 90.11 2.28 2.5 405,675 5 0 5/11/95 Mar 14 30
FINANCIALS
AFLAC Inc. AFL 52.02 1.40 2.7 24,334 6 9 11/1/06 Mar 7 30
Brown & Brown, Inc. BRO 32.04 0.36 1.1 4,610 5 12 10/3/08 Feb 5 19
Chubb Corporation CB 87.53 1.76 2.0 22,912 6 9 12/5/11 Jan 2 31
Commerce Bancshares CBSH 40.83 0.90 2.2 3,737 4 8 4/18/97 Mar 17 45
Eaton Vance EV 41.83 0.80 1.9 5,038 7 13 1/12/01 Feb 13 32
Appendix – DSIP list as of 3/31/2013 (continued)
Est Est Dividend
Annual Annual Increases Consecutive
3/31/13 Annual Market Div EPS Date Since Annual
Price Div Yield Cap Growth Growth* Added Pay Added Increases for
Ticker ($) ($) (%) (mil$) (%) (%) To DSIP Cycle to DSIP Company
HEALTH CARE
Abbott Laboratories ABT 35.32 0.56 1.6 55,688 8 13 6/25/08 Feb 5 40
Baxter International Inc. BAX 72.64 1.80 2.5 39,677 7 10 10/3/08 Jan 5 6
Becton, Dickinson & Co. BDX 95.61 1.98 2.1 18,545 7 8 1/5/07 Mar 6 41
Johnson & Johnson JNJ 81.53 2.44 3.0 226,530 6 6 6/25/08 Mar 4 50
Novartis AG ~ NVS 71.24 2.48 3.5 172,445 4 5 9/16/05 Annual 8 16
Owens & Minor Inc. OMI 32.56 0.96 2.9 2,060 6 10 4/21/06 Mar 7 15
Stryker Corporation SYK 65.24 1.06 1.6 24,791 10 9 4/25/12 Jan 1 22
Teva Pharmaceutical Ind. Ltd ~ TEVA 39.68 1.07 2.7 34,006 9 5 5/3/11 Mar 2 14
INDUSTRIALS
Emerson Electric EMR 55.87 1.64 2.9 40,374 5 9 11/30/93 Mar 19 56
General Dynamics Corporation GD 70.51 2.24 3.2 24,938 5 6 6/25/08 Feb 5 22
W.W. Grainger Inc. GWW 224.98 3.20 1.4 15,631 8 14 7/10/06 Mar 6 41
Illinois Tool Works ITW 60.94 1.52 2.5 27,731 5 7 3/2/05 Jan 7 48
3M Company MMM 106.31 2.54 2.4 73,045 5 11 3/2/05 Mar 8 55
Norfolk Southern Corp. NSC 77.08 2.00 2.6 24,206 5 10 7/31/03 Mar 15 11
United Parcel Service, Inc. UPS 85.90 2.48 2.9 81,863 6 9 3/7/07 Mar 5 4
United Technologies UTX 93.43 2.14 2.3 85,848 7 11 9/20/01 Mar 10 18
INFORMATION TECHNOLOGY
Accenture Ltd. ACN 75.97 1.62 2.1 60,619 6 11 6/25/08 Semi 5 6
Analog Devices Inc. ADI 46.49 1.36 2.9 14,225 5 10 6/28/07 Mar 5 9
Automatic Data Processing Inc. ADP 65.03 1.74 2.7 31,520 5 10 11/25/03 Jan 9 38
FactSet Research Systems FDS 92.60 1.24 1.3 4,037 8 14 2/6/09 Mar 4 13
Harris Corp. HRS 46.34 1.48 3.2 5,208 5 0 8/29/08 Mar 5 11
Int'l Business Machines IBM 213.30 3.40 1.6 238,335 6 10 7/20/00 Mar 12 17
Intel Corp. INTC 21.84 0.90 4.1 107,952 6 8 2/20/07 Mar 6 8
Jack Henry & Associates Inc. JKHY 46.21 0.52 1.1 3,980 8 12 11/11/99 Mar 13 10
Microsoft Corporation MSFT 28.61 0.92 3.2 239,538 7 9 1/5/12 Mar 1 9
Paychex Inc. PAYX 35.06 1.32 3.8 12,758 4 10 5/7/01 Feb 9 2
MATERIALS
Air Products and Chemicals APD 87.12 2.84 3.3 18,088 6 10 7/5/06 Feb 7 31
AptarGroup ATR 57.35 1.00 1.7 3,779 7 10 12/4/06 Feb 5 18
Ecolab Inc. ECL 80.18 0.92 1.1 23,629 8 15 3/6/07 Jan 6 21
Praxair Inc PX 111.54 2.40 2.2 33,041 7 11 6/15/06 Mar 7 20
Sigma-Aldrich Corporation SIAL 77.65 0.86 1.1 9,318 8 7 8/25/03 Mar 10 37
TELECOMMUNICATIONS
Appendix – DSIP list as of 3/31/2013 (continued)
Est Est Dividend
Annual Annual Increases Consecutive
3/31/13 Annual Market Div EPS Date Since Annual
Price Div Yield Cap Growth Growth* Added Pay Added Increases for
Ticker ($) ($) (%) (mil$) (%) (%) To DSIP Cycle to DSIP Company
UTILITIES
MDU Resources Group Inc. MDU 24.99 0.69 2.8 4,719 3 8 2/23/99 Jan 15 22
NextEra Energy, Inc. NEE 77.68 2.64 3.4 32,936 5 7 5/10/94 Mar 20 19
National Fuel Gas Co. NFG 61.35 1.46 2.4 5,122 3 9 11/30/93 Jan 19 42
New Jersey Resources NJR 44.85 1.60 3.6 1,875 4 2 2/16/96 Jan 18 18
Northeast Utilities NU 43.46 1.47 3.4 13,649 5 8 6/7/04 Mar 10 14
Piedmont Natural Gas Co. PNY 32.88 1.24 3.8 2,384 3 4 11/30/93 Jan 20 35
SCANA SCG 51.16 2.03 4.0 6,753 3 5 2/8/02 Jan 12 13
South Jersey Industries Inc. SJI 55.59 1.77 3.2 1,752 5 9 3/29/04 Apr 9 14
Southern Company SO 46.92 1.96 4.2 40,716 4 5 7/13/11 Mar 1 11
Wisconsin Energy Corp. WEC 42.89 1.36 3.2 9,824 6 5 2/8/11 Mar 1 10
* For REITs, the number in the Est. EPS Growth column applies to estimated Funds From Operations (FFO). ~ Dividend does not reflect the foreign tax withholding.
§ Royal Dutch Shell has two share classes (RDS.A, RDS.B). Dividends on both classes are paid in U.S. dollars. A foreign tax is withheld from the Class A shares but not from the Class B shares. Consult your tax advisor for details.
Dividend and EPS growth estimates come from a variety of sources, including the analysts who choose stocks for DSIP.
IMPORTANT DISCLOSURES:
For important disclosure information, please contact: Wells Fargo Advisors
Attn: Advisory Services (Disclosure Information) One North Jefferson
St. Louis, MO 63103
Or call by phone: (888) 410-9203
Please remember to specify the issuer(s) with respect to which you would like to receive disclosure information.
ANALYST CERTIFICATION:
The Analyst who prepared this report hereby certifies that the
views expressed in this report accurately reflect his/her personal views about the subject
companies and their securities. The Analyst also certifies that he/she has not been, is not, and will
not be receiving direct or indirect compensation for expressing the specific recommendation(s) or
view(s) in this report.
Disclaimers
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
Technology and internet-related stocks, especially of smaller, less-seasoned companies, tend to be more volatile than the overall market.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
You should be aware that investments can fluctuate in price, value and/or income, and you may get back less than you invested. We recommend that existing shareholders consider their objectives, their risk tolerance, and the size of their positions relative to their portfolios when evaluating their holdings. Dividends are not guaranteed and are subject to change or elimination.
Investments that are concentrated in a specific sector, industry, country or commodity increases its vulnerability to any economic, political, currency or regulatory development, which may result in greater price volatility.
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Wells Fargo Advisors is a trade name for certain broker/dealer affiliates of Wells Fargo & Company; other broker/dealer affiliates of Wells Fargo & Company may have differing opinions than those expressed in this report. Contact your Financial Advisor if you would like copies of additional reports.
Additional information available upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice.
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