In This Issue A Buffett of Classic Advice TBuffett’s Annual Letter to Shareholders Perhaps it was serendipitous that Warren Buffett’s annual letter to Berkshire Hathaway shareholders

A Buffett of Classic AdviceThe markets officially entered correction territory at the end of February, as

the Dow Jones industrial average and S&P 500 index declined more than 10% due to fears about the spread of the coronavirus (COVID-19). A correction is de-fined on Wall Street as a move down by more than 10% from an index’s recent high. The last week of February was the worst one-week performance for the U.S. stock market since the 2008 financial crisis. Through the close on February 28, the Dow was down more than 12.4% week to date, while the S&P 500 had lost 11.5%.

The markets moved out of correction territory through the close on Wednesday, March 4, after Super Tuesday’s 2020 U.S. Democratic presidential primary election results and strong February economic data were reported. The U.S. services sector expanded at a faster-than-expected rate for the month and private payrolls topped expectations.

In addition, the yield on 10-year Treasury notes dropped to all-time lows on Tuesday, March 3, at one point slipping below 1% for the first time ever. This could be positive news for dividend investors. If the yield on bonds is falling rela-tive to the dividend yield on common stocks, stocks become more attractive and money may move out of bonds and into stocks. Treasury notes plunged after the Federal Reserve issued an emergency interest rate cut by 50 basis points to a range between 1.00% and 1.25% in response to the unknown economic risks posed by the coronavirus outbreak.

The novel global coronavirus situation continues to rapidly evolve and expand. As the number of cases being reported in China started to decline, a sharp increase in the cases outside of China in countries such as South Korea, Italy, Iran and Japan sparked fears of a global pandemic.

As of March 4, there were more than 95,180 confirmed cases of COVID-19 worldwide, and the disease has claimed roughly 3,254 lives. According to Worldometer—a website that aggregates statistics from health agencies across the world—the number of newly recovered patients has been greater than the number of newly infected patients every day since February 19.

Buffett’s Annual Letter to ShareholdersPerhaps it was serendipitous that Warren Buffett’s annual letter to Berkshire

Hathaway shareholders came out the weekend before the recent market volatility.

One section from his letter stood out to me: “Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, per-haps of 50% magnitude or even greater. But the combination of The American Tailwind … and the compounding wonders described by Mr. [Edgar Lawrence] Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions.” What Buffett is ultimately saying is “keep calm, and invest for the long term.”

In a recent interview with CNBC, Buffett had some classic advice for what investors should do in 2020 during volatile times in the market. His main mes-sage to investors included the following: 1) Investors are owners. You don’t just

AAII Dividend Investing is produced by AAII. “The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.”

In This Issue

DI TablesPortfolio Alerts This Month 2Portfolio Holdings 3Performance of DI Portfolio 4Recent Earnings Announcements 5Dividend Payments 6Dividend Analysis 7

In-Depth Stock ReportsBlackRock, Inc. (BLK) 8

Large money manager continues to grow its dividend and is trading at an attractive yield.

Polaris Inc. (PII) 10Innovative powersports company taking market share with its Indian Challenger motorcycle, while achieving Dividend Aristocrat status.

Snap-on Inc. (SNA) 12Vehicle repair service and tool supplier has increased its dividend for 10 straight years, most recently by 13.7% last fall.

Tyson Foods, Inc. (TSN) 14One of world’s largest food companies, known for raising chickens and dividends.

DI Article Dividend Yield Perspective Throughout History 16

The S&P 500 yield stands at 2.0%, below its long-term average of 2.9%. Examining dividend yield from a historical perspective.

Next Publication Date: March 27, 2020

March 2020Volume IX Issue 3

www.AAIIDividendInvesting.com

TM

2 March 2020

its dividend is perceived as secure, the regular in-come stream is an attrac-tive enticement to wait for an improvement in the market environment.

Sticking with the Buffett theme for this month, we often get asked, “If the Oracle of Omaha loves

dividends so much, why doesn’t his company pay any?” While it is true that Buffett loves getting dividends, Berkshire Hathaway hasn’t paid one to its share-holders since 1967 and the company doesn’t plan to declare one anytime soon. Buffett jokes that he must have been in the bathroom when the deci-sion to pay the dividend was made.

Buffett has invested a considerable amount of his firm’s capital in dividend-paying stocks, particularly in those that consistently increase their payments every year, similar to the stocks the Dividend Investing portfolio seeks. The 10 largest holdings in Berkshire’s portfo-lio paid the company nearly $3.8 billion in dividends during 2019.

Buffett’s dividend philosophy may seem like a big contradiction, but his reasoning makes sense. The short answer is that he believes that the com-pany’s cash pile of $128 billion can be better spent on other priorities, rather than paying a dividend to shareholders.

In several of his annual shareholder letters over the years, Buffett explains that he has three priorities for using the cash generated by Berkshire’s busi-ness activities that are ahead of any dividend.

The first priority will always be to reinvest profits as needed in Berkshire’s existing businesses. This includes items like bolt-on acquisitions and

Published monthly by the American Association of Individual Investors 625 N. Michigan Ave., Chicago, IL 60611 312-280-0170, www.aaii.com. Annual DI subscription, $278.

AAII Dividend Investing™ (DI) is not a registered investment adviser or a broker/dealer. This report is issued solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities.

The opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause,

or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users. All information contained in this report should be independently verified with the companies mentioned.

© American Association of Individual Investors, 2020. AAII Dividend Investing is a trademark and service mark of the American Association of Individual Investors—All rights reserved. This publication may not be reproduced in whole or in part by any means without prior written consent.

“The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.”

Printed in the U.S.A.

Portfolio Alerts This MonthMarch Portfolio Deletions

Portfolio Stock Total Index TotalAddition Return Since Return Since

Date Price Alert Date Purchase Purchaseno portfolio deletions for March

March Portfolio Additions

Company (Ticker) Latest PriceDividend

Yield Sector: Industryno portfolio additions for March

Company (Ticker)Portfolio Deletion Alert

shocks; a flu epidemic; and the resigna-tion of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Don’t panic, stay invested. During uncertain market conditions, it’s critical to keep your focus on your long-term perspective. It’s important not to let short-term volatility and price move-ments affect your outlook if your time horizon is long term. It could lead to short-term decisions that you’ll regret over the long run. We know this is often easier said than done. One reason why: Financial markets have been relatively immune to the effects of past outbreaks (SARS, MERS, Zika, etc.). Nearly two decades ago, when SARS swept across China, the S&P 500 dropped 12% from November 2002 until March 2003. During the Zika virus, which occurred at the end of 2015 and into 2016, the mar-ket fell by nearly 13%. There are other examples, but they all passed, and the market recovered and hit new highs.

Successful investment strategies do not need to be complex, but they only work well if followed consistently.

Buffett and DividendsOne element that contributes to the

downside protection during market uncertainty is the regular quarterly cash dividend that investors receive from dividend-paying stocks. Provided a company’s future looks promising and

own a stock. You own the business; 2) Don’t buy or sell your business based on headlines. Has the long-term outlook changed at all?; and 3) Have cash on hand for buying opportunities. Buffett’s message is simple, but for many inves-tors, panic and fear often take over and it’s hard to follow.

In fact, the legendary investor’s key message really hasn’t changed much over the years. A 2008 op-ed article Buffett wrote for the New York Times titled “Buy American. I Am.” puts the current market turbulence into perspec-tive. At that time, the financial world was a mess and headlines were scary, but he was busy buying American stocks. A simple rule dictated his buy-ing: Be fearful when others are greedy, and be greedy when others are fearful.

Investors were right to be fearful during the financial crisis, but he stated that fears regarding the long-term prosperity of the nation’s many sound companies made no sense. Buffett said, “These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.” Buffett also noted that: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil

https://www.nytimes.com/2008/10/17/opinion/17buffett.html

March 2020 3

AAII DIvIDeND INvesTINg

DI Pur- Latest Febchase Price Gain/ Div

Ticker Company Date Price Price (3/4/20) (Loss) Stock Index Yield IndustryAMGN Amgen, Inc. 10/27/17 $175.28 $174.93 $215.11 (7.6%) 32.3% 29.3% 3.0% PharmaceuticalsBLK BlackRock, Inc. 10/5/18 $470.86 $463.47 $495.31 (12.2%) 11.8% 10.9% 2.9% Investment Mgmt & Fund OpersCMA Comerica Inc. 12/7/18 $74.03 $72.16 $50.39 (13.9%) (27.8%) 19.4% 5.4% BanksCBRL Cracker Barrel 2/3/17 $158.50 $157.56 $147.18 (6.3%) 4.1% 44.0% 3.5% Restaurants & BarsCMI Cummins Inc. 10/3/14 $135.10 $127.75 $156.44 (5.4%) 35.1% 73.3% 3.4% Auto, Truck & Motorcycle PartsEMN Eastman Chemical Co. 2/6/15 $73.20 $74.59 $62.91 (13.7%) (3.9%) 64.9% 4.2% Chemicals - CommodityETN Eaton Corporation 12/31/11 $43.53 $39.80 $98.12 (4.0%) 180.8% 165.2% 3.0% Electrical Components & EquipHD Home Depot Inc. 9/1/17 $150.78 $152.88 $241.08 (4.5%) 66.5% 31.8% 2.5% Retailers-Home Improve Prod/ServHBAN Huntington Bancshares 1/12/18 $15.85 $15.86 $12.65 (9.6%) (14.0%) 16.2% 4.7% BanksIBM IBM Corp. 10/2/15 $144.58 $155.86 $134.22 (9.4%) 8.1% 67.3% 4.8% IT Services & ConsultingIP International Paper Co. 4/4/14 $45.81 $45.23 $37.92 (9.2%) 4.4% 84.8% 5.4% Paper PackagingMDT Medtronic PLC 1/6/17 $72.87 $75.05 $103.59 (12.8%) 47.3% 44.0% 2.1% Medical Equip, Supplies & DistribOXY Occidental Petroleum 1/9/15 $77.54 $67.44 $32.93 (17.6%) (45.0%) 66.8% 9.6% Oil & Gas - Exploration & ProdPEP PepsiCo, Inc. 12/31/11 $66.35 $66.66 $142.39 (7.0%) 169.9% 165.2% 2.7% Non-Alcoholic BeveragesPII Polaris Inc. 12/9/16 $85.84 $86.34 $92.48 (10.1%) 16.3% 44.0% 2.7% Recreational ProductsPFG Principal Financial Group 12/9/16 $60.30 $57.72 $46.24 (16.2%) (12.6%) 44.0% 4.8% Insurance - Life & HealthRCL Royal Caribbean Cruises Ltd. 11/8/19 $114.53 $113.80 $79.36 (31.3%) (29.2%) 4.6% 3.9% Hotels, Motels & Cruise LinesSNA Snap-on Incorporated 9/7/18 $180.60 $182.03 $149.55 (9.3%) (15.3%) 10.1% 2.9% Industrial Machinery & EquipTXN Texas Instruments 4/5/13 $34.20 $34.80 $119.05 (5.4%) 312.3% 122.9% 3.0% SemiconductorsTSN Tyson Foods, Inc. 3/8/19 $62.78 $64.74 $70.39 (17.9%) 10.3% 13.0% 2.4% Food ProcessingUNP Union Pacific Corp. 7/2/15 $96.66 $97.23 $162.17 (10.9%) 86.0% 61.5% 2.4% Freight & Logistics - GroundUNH UnitedHealth Group Inc 9/6/19 $229.00 $233.44 $289.42 (6.4%) 25.0% 4.9% 1.5% Managed Health careWBA Walgreens Boots Alliance 6/7/19 $51.97 $53.64 $48.69 (10.0%) (4.6%) 9.8% 3.8% Retailers - DrugWSM Williams-Sonoma, Inc. 6/3/16 $53.25 $53.28 $65.15 (11.0%) 34.1% 57.2% 2.9% Retailers - Home FurnishingsData as of 3/4/2020. Sources: AAII Stock Investor Pro, Refinitiv, I/B/E/S and company releases.

Portfolio AlertTotal Return

Since Purchase

Portfolio Holdings

investments in business assets. During the past decade, the company’s inter-nal investments in property, plant and equipment have totaled $121 billion.

The second priority is to search for new acquisitions, unrelated to its cur-rent business. A few examples include BNSF Railway, Clayton Homes and the $10 billion investment in DI portfolio holding Occidental Petroleum (OXY) in 2019, consisting of preferred stock and warrants to buy common stock. Buffett adamantly defends his acquisi-tion record, saying that shareholders are far wealthier today than if some of Berkshire’s acquisition capital had been spent on dividends instead.

Third, Buffett looks to use Berkshire’s cash to repurchase its own shares, but if and only if they are trading at “a meaningful discount to conservatively estimated intrinsic value.”

Buffett loves dividend-paying stocks for the same reason he loves most of the businesses Berkshire owns. They generate cash, which can be put to use in whatever way Berkshire needs at the time.

While the DI approach differs from Buffett’s by seeking to be fully allocated to stocks, it does follow the spirit of his

approach by setting aside the cash from dividend payments so it can be oppor-tunistically redeployed. Dividend cash is used to increase the position in any un-derweighted yet still attractive portfolio holdings and/or to fund the purchase of new stocks with sound business models and attractive valuations.

DI Portfolio AlertsAfter completing an in-depth review

of the holdings in the DI model port-folio, no stocks were identified that materially satisfied the unique quantita-tive deletion rules for the DI strategy. Therefore, there are no additions or deletions in the DI portfolio for March.

February Portfolio Performance

The DI tracking portfolio decreased 10.5% for the month of February, while the Dow Jones U.S. Index ETF (IYY) was down 8.1%. Comparing to a more dividend-growth focused strategy, the S&P 500 Dividend Aristocrats index was down 8.8% in February.

The DI tracking portfolio’s monthly loss of 10.5% was composed of 10.7% price decline and 0.2% income return.

The Dow Jones U.S. Index fund’s 8.1% decrease during the month was due to price decline and no income return.

Over the life of the DI portfolio through March 4, 2020, it has provided a total return of 130.0%, with dividend in-come contributing 49.9% to the total re-turn. The Dow Jones U.S. Index ETF has a total return of 181.2%, with income contributing 38.6% to the total return.

The average dividend yield of the stocks in the DI portfolio is 3.4% while the Dow Jones U.S. Index fund has a dividend yield of 1.9%. For a historical dividend perspective, we look at the monthly dividend yield of the S&P 500 along with the index’s value since 1960 on page 16. The dividend yield of the S&P 500 has averaged 2.9% since 1960.

Dividend News Eleven stocks in the DI portfolio de-

clared dividends during February, nine of which were in line with the previ-ous quarter’s payment: Cummins Inc. (CMI), Eastman Chemical Co. (EMN), Occidental Petroleum, PepsiCo Inc. (PEP), Royal Caribbean Cruises Ltd. (RCL), Snap-on Inc. (SNA), Tyson Foods Inc. (TSN), Union Pacific Corp. (UNP)

4 March 2020

and UnitedHealth Group Inc. (UNH). Eaton Corp. (ETN) declared a dividend

in February, raising its quarterly cash dividend by 2.8%, from $0.71 to $0.73 per share. Eaton’s current dividend yield of 3.0% is below its five-year average of 3.5%. The company has increased its dividend for 11 consecutive years. The dividend is payable on March 27, 2020,

to shareholders of record as of March 13. The stock will trade ex-dividend on Thursday, March 12. The company’s dividends have expanded at a 7.7% average annual rate over the last five fiscal years.

For U.S. tax purposes, Eaton esti-mates that all of the 2019 dividend will be treated as a return of capital

to shareholders, to the extent of the shareholder’s tax basis in the shares. Eaton estimates that all of any 2020 dividend will be treated as dividend income and not return of capital, as has been the case in prior years. Additional information about the tax treatment of the dividend is available at the investor relations page of the Eaton website, www.eaton.com.

Home Depot Inc. (HD) raised its quarterly cash dividend in February by 10.3%, from $1.36 to $1.50 per share. Home Depot’s current dividend yield of 2.5% is above its five-year average of 1.8%. The dividend is payable on March 26, to shareholders of record as of March 12. The stock will trade ex-dividend on Wednesday, March 11. The company’s dividends have expanded at a 21.4% average annual rate over the last five fiscal years.

Portfolio NewsStrongest Stocks During February

Eaton Corp. (ETN) was down by 4.0% for February, the smallest loss in a month when all DI holdings declined. During the month, Eaton reported fourth-quarter earnings and declared a regular quarterly dividend of $0.73 per share, a 2.8% increase compared to its previous dividend.

For fourth-quarter 2019, Eaton reported adjusted earnings per share of $1.37, which were flat year over year but missed the I/B/E/S consensus estimate of $1.41 by 2.5%. Sales for the quarter declined by 4.0% year over year to $5.2 billion.

Eaton anticipates full-year 2020 ad-justed earnings per share to be between $5.60 and $5.90, flat with the midpoint for 2019, excluding 2019 vehicle war-ranty costs.

Additionally, Eaton reached an agree-ment to sell its hydraulics business for $3.3 billion in cash to Danfoss A/S, a Danish industrial company. Eaton’s hy-draulics business accounted for 86% of its hydraulics segment revenue and had sales of $2.2 billion in 2019.

Home Depot Inc. (HD) had the

Performance

Dividend Yield 3.4% 1.9%

Total Return

Income Return

Capital Gain/(Loss)

Total Return

Income Return

Capital Gain/(Loss)

February (10.5%) 0.2% (10.7%) (8.1%) 0.0% (8.1%)2020 YTD (11.1%) 0.3% (11.4%) (2.9%) 0.0% (2.9%)2019 29.9% 4.1% 25.8% 30.8% 2.5% 28.3%2018 (11.5%) 2.6% (14.1%) (5.2%) 1.7% (6.9%)2017 22.3% 3.4% 18.9% 21.3% 2.0% 19.3%2016 18.2% 3.9% 14.3% 12.0% 2.1% 9.9%2015 (7.7%) 2.9% (10.6%) 0.4% 1.9% (1.5%)2014 12.2% 3.0% 9.2% 12.9% 2.0% 10.9%2013 36.5% 3.6% 32.9% 32.6% 2.3% 30.3%2012* 10.2% 3.5% 6.7% 14.4% 2.3% 12.1%From Inception 130.0% 49.9% 80.1% 181.2% 38.6% 142.6%Performance as of 3/4/2020.

Dividend Investing Portfolio Dow Jones U.S. Index (IYY)

Dividend Investing Portfolio* Dow Jones U.S. Index (IYY)

*The AAII Dividend Investing portfolio started on January 3, 2012. The portfolio is run as if managed by a subscriber and includes delays in reaction time to portfolio alerts, actual commissions and bid-ask spreads.

$90,000$100,000$110,000$120,000$130,000$140,000$150,000$160,000$170,000$180,000$190,000$200,000$210,000$220,000$230,000$240,000$250,000$260,000$270,000$280,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

AAII Dividend Investing Portfolio

Growth of $100,000

AAII Dividend Investing Portfolio

Performance of DI Portfolio

March 2020 5


second-smallest loss in the DI portfolio during February, down 4.5% for the month. The company reported earn-ings per share of $2.28 for the fourth quarter of 2019 that beat the I/B/E/S consensus estimate by 8.4%, on same-store sales growth of 5.2%.

Home Depot reaffirmed its financial outlook for fiscal 2020 with its earnings report but noted that it doesn’t include potential impacts of the coronavirus outbreak. The company expects same-store sales growth in the range of 3.5% to 4.0% and earnings growth of about 2.0%. According to the company, inven-tory for the first quarter is almost all de-livered or on its way. Looking forward, the company said its supply situation for the rest of the year is fluid, but Home Depot doesn’t expect a hit to earnings for 2020.

Home Depot plans to invest $2.8 bil-lion back into the business in the form of capital expenditures, to pay $6.4 billion in dividends and to repurchase at least $5 billion of outstanding shares.

Home Depot declared a regular quarterly dividend of $1.50 per share, a 10.3% increase from its prior dividend of $1.36 per share.

Texas Instruments (TXN) fell 5.4% in February, tying for the third-smallest decline in the DI portfolio. Although the company witnessed some slowing due to the coronavirus, shares of Texas Instruments benefited in early February from positive earnings estimate revision activity.

The Dallas-based semiconductor company posted fourth-quarter 2019 earnings of $1.12 per share in late January, which surpassed the I/B/E/S consensus estimate by 10.2%. The company reported revenues of $3.35 billion for the quarter ended December 2019, compared to year-ago revenues of $3.72 billion. Despite the 10.0% decrease in revenue, company officials stated that “most markets showed signs of stabilizing.” Sentiment improved for the semiconductor industry, but chip-related stocks were unable to offset the growing concerns of the spread and impact of the coronavirus.

Cummins Inc. (CMI) was also down by

5.4% for February. Cummins reported fourth-quarter 2019 adjusted diluted earnings per share of $2.56 that beat the I/B/E/S consensus estimate of $2.42 by 5.7%.

Net income for the quarter increased by 48.2% to $300 million. Revenues de-creased by 9.0% year-over-year to $5.6 billion. Driven by lower truck production in North America and weaker demand in global construction, mining and power generation markets.

Cummins expects full-year 2020 revenues to be down 8.0% to 12.0% and earnings before interest, taxes, depreciation and amortization (EBITDA) to range between 14.2% and 15.2% of sales. Projected revenue declines for 2020 are driven by lower truck produc-tion in North America, Europe, India and China as well as lower estimated demand in off-highway markets, includ-ing global power generation, mining, oil and gas and construction markets.

Cummins plans to return 75.0% of operating cash flow to shareholders via dividends and share repurchases during the year. The company declared a regular quarterly dividend of $1.311 per share, in line with the previous declaration.

Weakest Stocks During February

Royal Caribbean Cruises Ltd. (RCL) was the worst-performing stock in the DI portfolio for February, down by 31.3%. The decline was primarily driven by the ongoing coronavirus outbreak in China and beyond. Travel restrictions

and other related circumstances have resulted in the cancellation of 18 total sailings in Southeast Asia as well as modifications to several of the company’s itineraries. The company es-timated an impact on its 2020 financial performance of $0.65 per share. While not currently planned, if the company were to cancel all of its remaining sail-ings in Asia through the end of April, it would impact 2020 earnings by an additional $0.55 per share.

While early 2020 impacts were mainly related to coronavirus concerns in Asia, the recent bookings for the company’s broader business have also been softer. If travel restrictions continue for an extended period, the company could ex-perience a material impact to its overall financial performance.

On a more positive note, Royal Caribbean declared a regular quarterly dividend of $0.78 per share, in line with the previous declaration.

Tyson Foods Inc. (TSN) was the second-worst-performing stock in February, down 17.9%. The company was repeatedly hit with bad news during the month. Lackluster earnings, slowing exports to China due to the coronavirus outbreak and the broad market correction all contributed to the stock’s weak performance.

Sentiment fell as the company reported a slower-than-expected start to the year. Although quarterly sales grew 6.0% year over year, investors anticipated stronger revenue growth. Investor confidence continued to fall as the company announced that it will be

Recent earnings AnnouncementsDate Reported Expected Surprise

Ticker Company Reported Earnings Earnings %CBRL Cracker Barrel Feb 25 $2.550 $2.580 (1.2%)CMI Cummins Inc. Feb 4 $2.560 $2.422 5.7%ETN Eaton Corporation Feb 4 $1.370 $1.405 (2.5%)HD Home Depot Inc. Feb 25 $2.280 $2.104 8.4%MDT Medtronic PLC Feb 18 $1.440 $1.384 4.0%OXY Occidental Petroleum Feb 27 ($0.300) ($0.187) (60.4%)PEP PepsiCo, Inc. Feb 13 $1.450 $1.436 1.0%RCL Royal Caribbean Cruises Ltd. Feb 4 $1.420 $1.424 (0.3%)SNA Snap-on Incorporated Feb 6 $3.080 $3.080 0.0%TSN Tyson Foods, Inc. Feb 6 $1.660 $1.655 0.3%Data as of 3/4/2020. Sources: I/B/E/S and company releases.

6 March 2020

Months Ann'lDividend Ex-Dividend Date Ind Div Direct DRIP

Ticker Company Paid Date Payable Div Yield Invest PlanAMGN Amgen, Inc. 3, 6, 9, 12 Thu Feb 13, 2020 Fri Mar 6, 2020 $1.6000 � $6.40 3.0% -- YesBLK BlackRock, Inc. 3, 6, 9, 12 Wed Mar 4, 2020 Mon Mar 23, 2020 $3.6300 � $14.52 2.9% -- --CMA Comerica Inc. 1, 4, 7, 10 Thu Mar 12, 2020 Wed Apr 1, 2020 $0.6800 � $2.72 5.4% Yes YesCBRL Cracker Barrel 2, 5, 8, 11 Thu Apr 16, 2020 Tue May 5, 2020 $1.3000 $5.20 3.5% Yes YesCMI Cummins Inc. 3, 6, 9, 12 Thu Feb 20, 2020 Thu Mar 5, 2020 $1.3110 $5.24 3.4% No YesEMN Eastman Chemical Co. 1, 4, 7, 10 Fri Mar 13, 2020 Fri Apr 3, 2020 $0.6600 $2.64 4.2% Yes YesETN Eaton Corporation 3, 5, 8, 11 Thu Mar 12, 2020 Fri Mar 27, 2020 $0.7300 � $2.92 3.0% Yes YesHD Home Depot Inc. 3, 6, 9, 12 Wed Mar 11, 2020 Thu Mar 26, 2020 $1.5000 � $6.00 2.5% Yes YesHBAN Huntington Bancshares 1, 4, 7, 10 Tue Mar 17, 2020 Wed Apr 1, 2020 $0.1500 $0.60 4.7% Yes YesIBM IBM Corp. 3, 6, 9, 12 Fri Feb 7, 2020 Tue Mar 10, 2020 $1.6200 $6.48 4.8% Yes YesIP International Paper Co. 3, 6, 9, 12 Thu Feb 20, 2020 Mon Mar 16, 2020 $0.5125 $2.05 5.4% Yes YesMDT Medtronic PLC 1, 4, 7, 10 Thu Dec 26, 2019 Fri Jan 17, 2020 $0.5400 $2.16 2.1% Yes YesOXY Occidental Petroleum 1, 4, 7, 10 Mon Mar 9, 2020 Wed Apr 15, 2020 $0.7900 $3.16 9.6% Yes YesPEP PepsiCo, Inc. 1, 3, 6, 9 Thu Mar 5, 2020 Tue Mar 31, 2020 $0.9550 $3.82 2.7% Yes YesPII Polaris Inc. 3, 6, 9, 12 Fri Feb 28, 2020 Mon Mar 16, 2020 $0.6200 � $2.48 2.7% -- YesPFG Principal Financial Group 3, 6, 9, 12 Fri Feb 28, 2020 Fri Mar 27, 2020 $0.5600 � $2.24 4.8% Yes YesRCL Royal Caribbean Cruises Ltd. 1, 4, 7, 10 Thu Mar 5, 2020 Mon Apr 6, 2020 $0.7800 $3.12 3.9% -- --SNA Snap-on Incorporated 3, 6, 9, 12 Fri Feb 21, 2020 Tue Mar 10, 2020 $1.0800 $4.32 2.9% Yes YesTXN Texas Instruments 2, 5, 8, 11 Thu Jan 30, 2020 Mon Feb 10, 2020 $0.9000 $3.60 3.0% Yes YesTSN Tyson Foods, Inc. 3, 6, 9, 12 Fri May 29, 2020 Mon Jun 15, 2020 $0.4200 $1.68 2.4% Yes YesUNP Union Pacific Corp. 3, 6, 9, 12 Thu Feb 27, 2020 Tue Mar 31, 2020 $0.9700 $3.88 2.4% Yes YesUNH UnitedHealth Group Inc 3, 6, 9, 12 Fri Mar 13, 2020 Tue Mar 24, 2020 $1.0800 $4.32 1.5% -- --WBA Walgreens Boots Alliance 3, 6, 9, 12 Tue Feb 18, 2020 Thu Mar 12, 2020 $0.4575 $1.83 3.8% Yes YesWSM Williams-Sonoma, Inc. 2, 5, 8, 11 Thu Jan 23, 2020 Fri Feb 28, 2020 $0.4800 $1.92 2.9% -- --

� Quarterly dividend increased from prior quarter. Bold dates indicate dividend actions during this month.� Quarterly dividend decreased from prior quarter. Sources: AAII Stock Investor Pro, Refinitiv, I/B/E/S and company releases.

Data as of 3/4/2020.

Quarterly Dividend PaymentPaymentAmount

Dividend Payments

laying off 500 employees, attributed to a decline in global meat prices, contract-ing margins and an overall deterioration in the company’s chicken business.

CEO Noel White stated that although distribution is down because of the coronavirus outbreak, the company is optimistic that shipping ports will soon reopen and that demand will remain strong.

Despite the numerous headwinds, the company’s current dividend yield of 2.4% compares favorably to its five-year average high/low of 1.8% and 1.1%.

For more on Tyson Foods, see pages 14 and 15.

Occidental Petroleum (OXY) was among the worst-performing stocks in the DI portfolio for February, down 17.6% for the month. Its performance is related to the drop in oil prices stem-ming from the impact of the coronavirus on international energy consumption.

During February, Occidental reported

a fourth-quarter adjusted loss of $0.30 per share on a sequential increase in net sales of 15.8%. The loss for the quarter was related to $1.7 billion in impairment charges due to costs of the Anadarko acquisition, which Occidental disclosed weeks before the release of its earn-ings report. Total average daily produc-tion volume exceeded guidance at 1.4 million barrels of oil equivalent per day, attributed to improvement in well per-formance and reduction in downtime.

On a positive note, CEO Vicki Hollub stated, “The integration of our com-bined businesses is progressing ex-tremely well and faster than expected as evidenced by our outstanding opera-tional performance and we are ahead of schedule in capturing value from our $2 billion synergy program.” Occidental is advancing to achieve its divestiture tar-get of $15 billion and repaid $7 billion of debt within five months of closing the Anadarko acquisition.

The company declared a regular quar-terly dividend of $0.79 per share, in line with the previous declaration.

Principal Financial Group (PFG) was the fourth-worst-performing stock in the DI portfolio during February, down 16.2%. Like other asset management and insurance companies, Principal’s results are directly impacted by stock market fluctuations, changes in interest rates and the value of the U.S. dollar.

Before the end of January, the com-pany reported fourth-quarter 2019 earnings per share of $1.07 that grew by 28.9% year over year and adjusted earn-ings per share of $1.41 in line with the I/B/E/S consensus estimate. Principal Global Investors, a member of Principal Financial Group, had total assets under management that increased by 17.0% year over year to $458.6 billion, a record for the business. In February, the com-pany announced a new share repurchas-ing program of $900 million. ▪

March 2020 7


Est Consec- PayoutEPS Div First utive Ratio:

P/E Growth Growth Year Years FCFPS LiabRatio 1 Yr Rate Rate Div Div 12 5 Yr (12 to

Ticker (TTM) Current Ago Avg High Low (3-5 Yr) (5 Yr) Paid Raised Month Avg Month) AssetsAMGN 16.7 3.0% 2.8% 2.6% 3.1% 2.3% 6.7% 18.9% 2011 8 45% 66% 40% 84%BLK 17.4 2.9% 2.8% 2.6% 3.2% 2.2% 6.9% 11.3% 2003 11 46% 43% 78% 80%CMA 6.4 5.4% 2.5% 2.2% 2.9% 1.8% na 28.7% 1936 9 34% 30% 38% 90%CBRL 16.1 3.5% 3.0% 3.0% 3.4% 2.6% na 10.8% 1982 17 56% 54% 53% 71%CMI 10.8 3.4% 2.8% 3.0% 3.9% 2.5% (0.6%) 11.8% 1948 10 34% 46% 30% 62%EMN 11.5 4.2% 3.0% 2.6% 3.2% 2.3% 7.5% 12.1% 1994 10 45% 31% 31% 63%ETN 18.7 3.0% 3.3% 3.5% 4.3% 3.0% 6.6% 7.7% 1923 11 54% 50% 41% 51%HD 23.5 2.5% 2.1% 1.8% 2.2% 1.6% 7.5% 21.4% 1987 11 47% 43% 47% 102%HBAN 10.0 4.7% 3.7% 3.0% 3.6% 2.5% 4.9% 23.3% 1971 9 44% 36% 40% 89%IBM 12.5 4.8% 4.4% 4.0% 4.9% 3.4% 7.3% 8.6% 1915 24 61% 61% 46% 86%IP 12.3 5.4% 4.2% 3.9% 4.9% 3.3% 3.3% 6.8% 1946 8 65% 59% 34% 77%MDT 26.5 2.1% 2.2% 2.0% 2.3% 1.7% 7.7% 12.3% 1977 42 54% 62% 43% 44%OXY na 9.6% 4.7% 4.7% 5.8% 3.9% (7.5%) 1.7% 1975 17 na na 275% 69%PEP 27.4 2.7% 2.9% 3.0% 3.4% 2.7% 6.3% 8.4% 1952 47 73% 70% 98% 81%PII 17.8 2.7% 2.8% 2.3% 3.1% 1.9% na 4.9% 1995 25 46% 55% 37% 75%PFG 9.3 4.8% 4.2% 3.4% 4.4% 2.8% 7.2% 11.2% 2002 11 44% 36% 11% 95%RCL 8.9 3.9% 2.3% 2.1% 2.7% 1.7% 10.9% 21.9% 1995 7 33% 33% 90% 60%SNA 12.1 2.9% 2.2% 1.9% 2.2% 1.7% 6.7% 16.3% 1939 10 31% 29% 37% 40%TXN 22.7 3.0% 2.5% 2.6% 3.3% 2.2% 6.7% 21.0% 1962 16 60% 52% 52% 51%TSN 12.6 2.4% 1.8% 1.4% 1.8% 1.1% 9.0% 38.0% 1976 8 28% 17% 44% 57%UNP 19.3 2.4% 1.8% 2.4% 3.0% 2.0% 11.0% 15.4% 1899 9 44% 39% 50% 71%UNH 20.2 1.5% 1.4% 1.6% 1.9% 1.4% 13.2% 24.1% 1990 10 29% 29% 24% 67%WBA 12.0 3.8% 2.6% 2.1% 2.5% 1.8% 2.2% 6.9% 1933 44 44% 37% 35% 74%WSM 15.0 2.9% 2.9% 2.5% 3.1% 2.1% 2.8% 7.9% 2006 10 42% 43% 45% 71%Data as of 3/4/2020.

5 Yr Avg

Payout Ratio:Dividend Yield EPS

Dividend Analysis

Ann’l Ind Div: The total dollar amount of cash dividends forecast to be paid over the next 12 months.

Consecutive Years Div Raised: The number of current years the company has continu-ously increased the annual dollar amount of the dividend.

Date Payable: The date a company will distribute (or has distributed) the most recent quarterly dividend.

DI Purchase Price: The average cost basis per share of the stocks purchased for the real DI tracking portfolio. The average cost basis includes any commissions incurred for the purchase and is adjusted for stock splits and spin-offs, if appropriate.

Direct Invest: Denotes companies that of-fer a direct investment program, which allows investors to buy their initial shares directly from a company, without having to go through a broker.

Div Growth Rate (5 Yr): The compound an-nual percentage change in dividends per share over the past five years. Positive numbers show an increase in the dollar amount of dividends paid.

Div Yield (or Current Dividend Yield): Projected dividend payments for the next 12 months divided by the current stock price. This number shows, in percentage form, how much income can be expected relative to the current stock price.

Dividend Yield—1 Year Ago: The stock’s

dividend yield (dividends divided by price) from one year ago. 5 Year Averages: The stock’s av-erage and average high and low dividend yields over the past five years.

DRIP Plan: Denotes companies that offer a dividend reinvestment plan, which allows shareholders to use cash dividends to acquire additional shares of stocks, including partial amounts.

Est EPS Growth Rate (3-5 Yr): The forecast annual growth rate in earnings per share for the next three to five years.

Ex-Dividend Date: The date used by the exchanges to determine who owns shares of a company. This is one trading day before the re-cord date. Investors must purchase shares prior to the ex-dividend date to receive the dividend.

First Year Dividend Paid: The first year a company paid its dividend. If a dividend was suspended, the date is the first year the dividend was reinstated.

Liab to Assets: Total liabilities divided by total assets. A measure of balance sheet strength, lower percentages signal a lower proportionate amount of debt.

Market Cap (Mil): A measure of company size, this is the current share price multiplied by the number of shares outstanding, expressed in millions of dollars.

Months Dividends Paid: The calendar months the company has typically paid dividends to shareholders (1 = January, 2 = February, 3 =

March, etc.).Payment Amount: The dollar amount of the

current quarterly dividend payment. An up arrow () indicates that the dividend is higher than that paid last quarter. If no arrow is displayed, the dividend has not changed from the prior quarter.

Payout Ratio: EPS—12 Month: The percent-age of earnings paid out as dividends over the latest 12-month period. 5 Year Average: The average payout ratio for the previous five years. A payout ratio of 100% means the dollar amount of dividends paid equals the dollar amount of profits earned.

Payout Ratio: FCFPS (12 Month): The per-centage of free cash flow per share paid out as dividends over the latest 12-month period. Free cash flow is cash flow from operating activities less capital expenditures. A measure of a com-pany’s ability to both pay dividends and increase its cash balance.

P/E Ratio (TTM): The price-earnings ratio (price divided by earnings) based on reported earnings per share for the previous 12 months (trailing 12 months).

Total Return Since Purchase—Stock: The change in a stock’s price plus the value of all dividends received during the holding period divided by the commission-adjusted purchase price. Index: The total return of the benchmark index since the stock was added to the DI track-ing portfolio, expressed as a percentage.

Definitions of Terms Used in Tables

8 March 2020

BlackRock Inc. is one of the world’s largest money manage-ment firms. As of the end of 2019, the company oversaw $7.43 trillion in assets under management (AUM). BlackRock provides a range of exchange-traded funds (ETF), mutual funds, separately managed accounts and investment trusts. The company’s investment offerings range from traditional index funds to alternative investments that are not frequently traded (illiquid alternatives).

Many individual investors are familiar with its ETF business, which markets funds under the iShares brand. What may not be as well known is that iShares only accounts for 30% of BlackRock’s total AUM. Investment products and advisory ser-vices offered to institutional investors account for more than half (60%) of the company’s AUM. Mutual funds and related products offered to individual investors account for most of the remaining AUM.

BlackRock’s size and its market share in the ETF space give it competitive advantages. An early entrant into the ETF space, iShares is the second-largest ETF family. It trails only Vanguard in terms of AUM. The low fees, broker relationships and brand awareness position the company to take advantage of the growing shift to passive investments. BlackRock thinks the overall ETF space could double in size during the current five-year period.

The company is leveraging its experience with asset man-agement and its relationships within the investment industry to build out its technological offerings. Their Aladdin platform provides risk management, stock and bond trading services, data analytics for investment managers and a platform for advisers to use in their business.

Growth TrendsDuring the past five years, BlackRock’s revenues have grown

at a 5.6% annualized pace. Earnings have grown at a faster 8.1% pace over the same period.

The quarterly dividend was raised by 10.0% in January, to $3.63 per share. This year was the 11th consecutive year that BlackRock has raised its dividend. Since a dividend was first paid in 2003, it has never been cut. The dividend was kept steady in 2009, however, as the company endured and then emerged from the financial crisis.

BlackRock has also been returning cash to shareholders via share buybacks. Last year, the company repurchased $1.7 bil-lion of its own stock. CFO Gary Shedlin anticipates the com-pany “repurchasing at least $1.2 billion of shares during 2020.”

Financial StrengthBlackRock has the financial capacity to continue raising its

dividend. The current earnings payout ratio is 46.0%, a little above the investment management & fund operators industry group average.

Operating margins have been fairly rangebound over the past four years even though they slightly declined in 2019. BlackRock’s return on equity of 13.9% exceeds the industry average of 10.8%.

ValuationBlackRock’s price-earnings ratio of 17.0 (as of March 3)

ranks in the 50th percentile of all stocks. Its March 3 yield of 3.0% is above the five-year average of 2.6% and implies that the stock is undervalued. During the past five years, shares have traded within a yield range of 2.2% to 3.2%.

RisksThe company is making climate risk a key part of its invest-

ment approach, as CEO Larry Fink explained in his 2020 letter to CEOs. Initiatives include, but are not limited to, making sustainability part of portfolio construction and risk manage-ment approaches, exiting investments such as thermal coal producers, and launching new products that screen fossil fuels. These changes have the potential to impact portfolio returns and the investment fees earned by BlackRock.

BlackRock has flourished in the ETF space, but actively managed funds and strategies still account for 26% of its AUM. Regulatory changes and the ongoing push for lower fees could have a potential negative impact on the company’s mutual fund business.

Like other asset management companies, BlackRock’s rev-enues and profits are influenced by the health of the financial markets. Weakness in stocks, bonds or other asset classes can both reduce AUM and cause clients to withdraw money. Tough conditions can also lead to less demand for the com-pany’s investment service products.

Even with its large size, BlackRock still faces tough competi-tion. Vanguard’s mutual ownership structure provides it with certain cost advantages. In the ETF business, BlackRock faces competition from both new entrants as well as established players. The latter include Vanguard, PIMCO, Fidelity, State Street and Invesco. ▪

BlackRock, Inc. (BLK)

Bullish Factors• One of world’s largest asset managers; iShares ranks

second in total assets among ETF providers• Has grown revenues at a 5.6% pace and earnings per

share at an 8.1% rate over the past five years• 11 consecutive years of dividend increases, including

two increases in 2018

Bearish Factors• Initiatives to make environmental sustainability a

key part of the investment process could impact the performance of the company’s investment products

• Revenues, AUM and earnings are dependent on the health of the financial markets

• Faces tough competition over fund expense ratios from Vanguard, as well as from both new entrants and established players in the ETF business

March 2020 9


BLK $482.07 ($576.81 - $403.54)

Addition Alert Date: 10/5/2018Price at Alert: $ 470.86 Risk Index: 1.77Market Cap (Million): $75,546.6Avg Daily Dollar Volume (Million): $319.2Primary Sector: FinancialsPrimary Industry: Investment Management & Fund Operators

Indicated Annual Dividend: $14.52 Multiples Current 12/2019 12/2018 12/2017 12/2016 12/2015Latest Dividend Increase: Date Dividend Yield (%): Avg 3.0 3.0 2.5 2.3 2.7 2.7Latest Dividend Increase: % 10.0% Dividend Yield (%): High 3.5 3.3 2.7 3.3 3.2Dividend Yield: Current 3.0% Dividend Yield (%): Low 2.6 2.0 1.9 2.3 2.3Dividend Yield: 5-Year Avg (High-Low) Price/Earnings 17.0 15.6 18.0 19.3 17.9 16.6Dividend Paid Since: 2003 Price/Earnings (Industry) 11.1 11.8 14.7 16.3 13.8 17.2Number of Years of Div Increases: 11 Price/Book Value 2.2 2.1 2.4 2.3 1.9 1.9Direct Invest Option: No Price/Sales 5.2 4.7 5.4 5.3 4.6 4.8DRIP Plan: No Ratios Current 12/2019 12/2018 12/2017 12/2016 12/2015Declared Ex-Div Date Payable Amount Payout Ratio: EPS (%) 46.0 46.0 44.8 32.7 47.5 43.4

$3.6300 Payout Ratio: FCFPS (%) 77.9 78.3 67.1 42.7 69.9 52.1$3.3000 Gross Margin (%) 81.7 81.7 81.2 81.1 80.4 89.3$3.3000 Operating Margin (%) 38.2 38.2 38.4 38.6 37.2 40.9$3.3000 Operating Margin (%) (Ind) 26.2 27.1 28.2 28.0 29.4 28.0$3.3000 Net Margin (%) 30.8 30.8 30.3 36.4 25.8 29.3$3.1300 ROE (%) 13.9 13.6 13.4 16.3 11.0 12.0

Rel Strgth ROE (%) (Industry) 10.8 10.3 10.1 10.9 10.7 11.4Rank ROA (%) 2.7 2.7 2.3 2.2 1.4 1.4

4 Week 48% Current Ratio -- -- -- -- -- --13 Week 63% Liabilities to Assets (%) 80.1 80.1 79.7 85.6 86.8 87.326 Week 80% Liab to Assets (%) (Ind) 44.6 44.6 50.0 47.0 46.9 48.352 Week 76% Asset Turnover 0.1 0.1 0.1 0.1 0.1 0.0

Financial Statements TTM 12/2019 12/2018 12/2017 12/2016 12/2015Growth 5 Year Sales ($M) 14,539 14,539 14,198 13,600 12,261 11,401

Dividends 11.3% Gross Income ($M) 11,876 11,876 11,525 11,025 9,862 10,177Sales 5.6% Depreciation & Amort. ($M) 405 405 220 240 263 295Net Income 6.3% Unusual/Extra ($M) -- 0 60 0 76 0EPS Basic 7.9% Operating Income ($M) 5,551 5,551 5,457 5,254 4,565 4,664EPS Dil Cont 8.1% Interest Expense ($M) 203 203 184 205 205 204

Pretax Income ($M) 5,787 5,787 5,378 5,259 4,455 4,602SUE Score Net Income ($M) 4,476 4,476 4,305 4,952 3,168 3,345

3.40 Operating Cash Flow ($M) 2,884 2,884 3,075 3,950 2,273 3,0041.10 Investing Cash Flow ($M) (2,014) (2,014) (808) (608) (371) (465)

Annual Financing Cash Flow ($M) (2,583) (2,583) (2,765) (2,630) (1,685) (2,064)12/2021 Capital Expenditures ($M) 254 254 204 155 119 221

17 Net Cash Flow ($M) (1,659) (1,659) (591) 904 (56) 360$34.16 EPS Basic ($) 28.70 28.69 26.86 30.54 19.27 20.10$34.52 EPS Diluted Cont ($) 28.43 28.43 26.58 22.97 19.02 19.79

# Rev Up 1 EPS DC Year/Year Chg (%) 6.9 6.9 15.7 20.8 (3.9) 2.8 # Rev Down 2 Dividends/Share ($) 13.20 13.20 12.02 10.00 9.16 8.72Three Mos. Ago $32.57 Dividend Year/Year Chg (%) 9.8 9.8 20.2 9.2 5.0 13.0Year/Year Chg 7.8% Free Cash Flow/Share ($) 16.95 16.86 17.91 23.40 13.10 16.73

12/2019 9/2019 6/2019 3/2019 Total Cash ($M) 4,829 4,829 6,488 7,038 6,175 6,231$8.25 $7.15 $6.42 $6.61 $28.43 Goodwill/Intangibles ($M) 32,931 32,931 31,365 30,609 30,481 30,495$5.74 $7.54 $6.62 $6.68 $26.58 Total Assets ($M) 168,622 168,622 159,573 220,241 220,177 225,261

Long-Term Debt ($M) 4,955 4,955 4,979 5,014 4,915 4,93012/2019 9/2019 6/2019 3/2019 Total Total Liabilities ($M) 135,075 135,075 127,199 188,443 191,079 196,758$25.63 $23.78 $22.68 $21.14 $93.23 Book Value/Share ($) 216.17 215.03 201.96 196.09 176.97 171.30$21.62 $22.33 $22.39 $22.22 $88.56 Avg Shares Outst'g (M) 155.19 156.01 160.30 162.16 164.43 166.39

Sources: AAII Stock Investor Pro, Refinitiv and I/B/E/S. Data as of 3/3/2020.

11.5%

17

11

$7.03

1

$30.342

Annual12/2020

$7.38 $31.94$7.35 $31.69

Year Ago

TTM

TTMSales/Sh (Qtr)

Quarterly

EPS (Qtr)

Year Ago

CurrentMonth Ago

3/202014

11.2%

$7.15

Est Surprise

EPS Estimates# of Estimates

Oct 15, 2019Jan 15, 2020

% Surp8.4%2.7%

Index

Mar 5, 2019

6.9%

13.0%5.8%

12.2%14.2%14.3%

9.8%2.4%

TTM

Gain

4.0%6.9%

EPS$8.34

Jan 16, 2019Nov 20, 2018 Dec 6, 2018

(10%)(3%)14%10%

Stock

2.6% (3.2% - 2.2%)

1.02

BlackRock Inc. is one of the leading investment management firms, overseeing more than $7.4 trillion of assets under management (AUM). The company's investment products include open-end and closed-end mutual funds, iShares exchange-traded funds (ETFs), separate accounts, collective investment trusts and other pooled investment vehicles. In addition, its investment and risk management technology platform Aladdin provides risk analytics, advisory and technology services to institutional clients and wealth management firms.

May 23, 2019

Jan 29, 2020Dec 5, 2019Sep 4, 2019 Sep 4, 2019

Dec 5, 2019Mar 4, 2020

Mar 21, 2019Dec 7, 2018

Jan 29, 2020

Jun 5, 2019

1.03

3 Year

Mar 23, 2020Dec 23, 2019Sep 24, 2019

0.99

Jun 20, 2019

Rel Strgth

1.11

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019$0

$100

$200

$300

$400

$500

$600

$700

Div

iden

d Yi

eld Share Price

10 March 2020

Together with its subsidiaries, Polaris Inc. designs, engi-neers, manufactures and markets off-road vehicles (ORVs), snowmobiles, motorcycles, boats and small vehicles in over 100 countries, but primarily in the U.S., Canada, Western Europe, Australia and Mexico.

The company offers off-road vehicles, such as all-terrain vehicles (ATVs) and side-by-side vehicles, for recreational and utility use; snowmobiles; V-twin cruiser motorcycles; small ve-hicles, including enclosed on-road quadricycles and light-duty commercial vehicles; technical riding gear for the snowmobile and motorcycle industries; and recreational boats.

The company also provides replacement parts and acces-sories. It sells its products through a network of indepen-dent dealers and distributors. Further, the company markets recreational apparel. According to full-year 2019 results, the company has five reporting segments: ORV/snowmobiles (62% of annual revenue), motorcycles (9%), global adjacent markets (7%), aftermarket (13%) and boats (9%).

Growth TrendsPolaris provides some of the best-selling brands in the

industry, including RANGER utility vehicles, RZR side-by-sides, Indian Motorcycle, Slingshot roadster, GEM electric vehicles and Bennington boats.

Following many recalls and production delays in 2015, Polaris announced that it would implement a new value improvement process (called VIP) to improve quality, deliv-ery and costs. The VIP initiatives have helped Polaris boost its gross margin. In 2018, the company improved margins by $150 million associated with completing 2,770 VIP initiatives.

The company reported fourth-quarter 2019 revenue of $1.74 billion, up 7% compared to the fourth quarter of 2018. Diluted earnings per share (EPS) of $1.83 were in line with the prior year but exceeded the I/B/E/S consensus estimate of $1.79 per share by 2.2%. Polaris was hindered by higher tariff costs but helped by an effort to maintain its price leadership, even if that meant sacrificing volume gains. While most seg-ments remained in line with prior performance, motorcycles

and off-road vehicles grew significantly. Motorcycle sales increased 37% year over year and the company has continued to gain share in this competitive market.

Revenue for Polaris has increased, on average, by 8.6% a year over the last five years and by 14.5% a year over the last three years. While the negative impact of tariffs remains a sig-nificant headwind on an annualized basis, the year-over-year impact is expected to be minimal to the company in 2020.

Polaris has paid a dividend since 1995 and has consecu-tively increased its dividend for 25 years, achieving Dividend Aristocrat status as a result.

Financial StrengthPolaris’ earnings payout ratio of 46.3% is well below its five-

year average of 54.6%. The company’s free-cash-flow-payout ratio of 37.2% is also below the five-year average of 48.7%. The company has a free cash flow per share of $6.56, well above the five-year average of $5.16.

Due to an aggressive acquisition strategy, the ratio of total liabilities to total assets has increased over the last five years from 58.9% to 75.0%, above the industry median of 55.7%.

The company’s share repurchases decreased to $8 million in 2019, a 98% change from the same period last year as debt reduction is currently a higher priority.

ValuationShares of Polaris currently yield 2.9%, based on an annual

indicated dividend of $2.48 per share, above the five-year average of 2.3%. The company is trading with a price-earnings ratio of 16.2, well below the five-year average of 22.2, and be-low the industry median of 16.5. The forward price-earnings ratio is 12.1 times expected 2020 consensus earnings.

RisksMotorcycles, boats and ATVs are all luxury items, and a

slowdown in the global economy could prove detrimental to the replacement and adoption rates of such products.

Polaris faces integration risks, particularly as it has become more acquisitive, acquiring TAP and Boat Holdings LLC most recently. Liability risk also persists as it self-insures against product liability claims. Weather is a large factor that Polaris cannot control. Snowmobile sales are directly correlated with the amount of snowfall generated, making this segment’s volume the most volatile.

Recalls also weigh down the company’s ability to maintain brand equity. Foreign exchange exposure could also turn out to affect the company’s sales as it grows internationally, due to continued uncertainty. With international operations, the stock can be affected negatively by exchange rates.

Tariffs have adversely impacted earnings. A continuation or escalation can have a material impact on the profitability of the company. The coronavirus outbreak is a potential sup-ply chain risk. Growing uncertainty over the global economic environment also presents a challenge, as Polaris produces discretionary goods. ▪

Polaris Inc. (PII)

Bullish Factors• A reputation for innovation with motorcycle segment

gaining market share• Attractive dividend yield and price-earnings ratio relative

to historical levels• Acquisition of boat segment complements portfolio of

recreational products

Bearish Factors• Headwinds from tariffs• Potential supply chain disruption from coronavirus

outbreak • Economic slowdown will hurt sales of discretionary

recreational products

March 2020 11


Addition Alert Date: 12/9/2016Price at Alert: $85.84 Risk Index: 2.46Market Cap (Million): $5,237.2Avg Daily Dollar Volume (Million): $65.7Primary Sector: Consumer CyclicalsPrimary Industry: Recreational Products

Indicated Annual Dividend: $2.48 Multiples Current 12/2019 12/2018 12/2017 12/2016 12/2015Latest Dividend Increase: Date Dividend Yield (%): Avg 2.9 2.7 2.3 2.2 2.6 1.8Latest Dividend Increase: % 1.6% Dividend Yield (%): High 3.3 3.4 3.0 3.2 2.6Dividend Yield: Current 2.9% Dividend Yield (%): Low 2.3 1.7 1.7 2.1 1.3Dividend Yield: 5-Year Avg (High-Low) Price/Earnings 16.2 17.2 19.8 29.9 26.3 17.8Dividend Paid Since: 1995 Price/Earnings (Industry) 16.5 19.2 17.7 19.0 18.0 19.4Number of Years of Div Increases: 25 Price/Book Value 4.7 5.0 7.5 7.2 6.4 8.1Direct Invest Option: No Price/Sales 0.8 0.8 1.1 1.2 1.2 1.7DRIP Plan: Yes Ratios Current 12/2019 12/2018 12/2017 12/2016 12/2015Declared Ex-Div Date Payable Amount Payout Ratio: EPS (%) 46.3 46.3 44.8 84.6 66.4 30.7



4 Week 54% Current Ratio 1.1 1.1 1.2 1.1 1.2 1.413 Week 39% Liabilities to Assets (%) 75.0 75.0 79.0 69.8 72.0 58.926 Week 66% Liab to Assets (%) (Ind) 55.7 55.9 45.1 50.1 43.6 39.052 Week 57% Asset Turnover 1.5 1.6 1.7 1.8 1.6 2.1


Dividends 4.9% Gross Income ($M) 1,649 1,649 1,501 1,325 1,106 1,339Sales 8.6% Depreciation & Amort. ($M) 235 235 211 191 168 152Net Income (6.5%) Unusual/Extra ($M) 0 0 0 0 0 0EPS Basic (5.1%) Operating Income ($M) 484 484 487 360 350 716EPS Dil Cont (4.8%) Interest Expense ($M) 78 78 57 32 16 12

Pretax Income ($M) 408 408 429 319 313 686SUE Score Net Income ($M) 324 324 335 173 213 455

1.50 Operating Cash Flow ($M) 655 655 477 585 590 4402.40 Investing Cash Flow ($M) (239) (239) (960) (151) (909) (289)

Annual Financing Cash Flow ($M) (412) (412) 523 (428) 315 (120)12/2021 Capital Expenditures ($M) 251 251 225 184 209 250

13 Net Cash Flow ($M) 3 3 32 16 (10) 18$7.64 EPS Basic ($) 5.27 5.27 5.36 2.74 3.31 6.90$7.62 EPS Diluted Cont ($) 5.20 5.20 5.24 3.55 3.27 6.75

# Rev Up 0 EPS DC Year/Year Chg (%) (1.1) (0.8) 47.6 8.7 (51.6) 1.4 # Rev Down 0 Dividends/Share ($) 2.44 2.44 2.40 2.32 2.20 2.12Three Mos. Ago $7.46 Dividend Year/Year Chg (%) 1.7 1.7 3.4 5.5 3.8 10.4Year/Year Chg 9.8% Free Cash Flow/Share ($) 6.56 6.57 4.03 6.37 5.92 2.89

12/2019 9/2019 6/2019 3/2019 Total Cash ($M) 157 157 161 138 127 155$1.58 $1.42 $1.42 $0.78 $5.20 Goodwill/Intangibles ($M) 1,490 1,490 1,518 781 793 202$1.47 $1.50 $1.43 $0.85 $5.26 Total Assets ($M) 4,431 4,431 4,125 3,090 3,100 2,386

Long-Term Debt ($M) 1,527 1,527 1,896 865 1,138 45612/2019 9/2019 6/2019 3/2019 Total Total Liabilities ($M) 3,323 3,323 3,258 2,158 2,233 1,404$28.20 $28.82 $28.97 $24.41 $110.39 Book Value/Share ($) 18.00 18.03 13.87 14.81 13.48 14.87$26.51 $26.55 $23.78 $20.50 $97.34 Avg Shares Outst'g (M) 61.57 61.44 62.51 62.92 64.30 66.02


0.87

3 Year

Mar 16, 2020Dec 16, 2019Sep 16, 2019

1.01

Jun 17, 2019

Rel Strgth

1.00

2.3% (3.1% - 1.9%)

0.91

Polaris Inc. designs, engineers and manufactures off-road vehicles (ORV), including all-terrain vehicles (ATV) and side-by-side vehicles for recreational and utility use, snowmobiles, motorcycles and global adjacent markets vehicles, together with the related parts, garments and accessories. The company's segments are ORV/snowmobiles, motorcycles, global adjacent markets, aftermarket and boats. These products are sold through dealers and distributors located in the U.S., Canada, Western Europe, Australia and Mexico.

Apr 25, 2019

Jan 31, 2020Oct 24, 2019Jul 24, 2019 Aug 30, 2019

Nov 29, 2019Feb 28, 2020

Mar 1, 2019Dec 17, 2018

Jan 31, 2020

May 31, 2019

(1.9%)

EPS$1.83

Jan 31, 2019Oct 25, 2018 Nov 30, 2018

(8%)(14%)3%(7%)

Stock

% Surp2.2%6.6%

Index

Feb 28, 2019

(1.1%)

3.5%14.5%15.0%16.8%16.7%

1.7%11.6%

TTM

Gain

(3.4%)

$1.68

Est Surprise


Oct 22, 2019Jan 28, 2020

Year Ago

TTM

TTMSales/Sh (Qtr)

Quarterly

EPS (Qtr)

Year Ago

CurrentMonth Ago

3/202013

(22.8%)

Annual12/2020

$0.74 $6.94$0.60 $6.96

33.7%

14

02

$1.18

0

$6.830

0%

1%

2%

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8%

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10%


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$180

Div

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PII $84.45 ($104.37 - $77.05)

12 March 2020

Snap-on Incorporated was founded in 1920 to help profes-sional mechanics meet the growing demand to repair auto-mobiles. Their initial product combined five unique handles and 10 sockets that snapped on interchangeably. The com-pany quickly expanded its product line to service a wide range of equipment and industries, selling tools directly to repair technicians at their places of business.

Snap-on is the largest manufacturer and distributor of premium hand and power tools. It has well-regarded brand names in hand tools, diagnostic equipment, power tools and tool storage. It serves customers in over 130 countries. It is seeking growth though expanding sales into additional mar-kets beyond vehicle repair—including aerospace, industrial and oil and gas. It is also expanding into emerging markets where the vehicle repair industry is in an early stage of devel-opment. Overall increasing vehicle technology offers greater opportunities to sell high-margin diagnostic tools.

Growth TrendsRevenue for Snap-on has increased at a 3.1% annual rate of

growth over the last three and five years but has contracted 0.1% over the last year.

Net income is much stronger, with a five-year compound annual growth rate (CAGR) of 10.5%; however, the growth rate is slowing, with a three-year CAGR of 8.3%. The year-over-year growth in net income is 2.0%. The improvement in net income growth is seen through the expansions of both the operating margins and net profit margins. The operating margin has increased from 21.3% to 23.7% over the last five years. The trailing 12-month operating margin of 23.7% is well above the 7.5% median for the industrial machinery and equipment industry. The net profit margin has increased from 13.3% to 17.0% over the last five years.

Snap-on reported earnings last quarter that matched consensus estimates, but it had a minor positive earnings sur-prise of 0.9% in the previous quarter. Analysts expect earnings to expand 0.8% to $12.51 for the current fiscal year and 4.7% to $13.09 for 2021. It should be noted that the consensus estimate for the current year has declined over the last three

months from $12.73 to $12.51 for the current fiscal year but increased from $12.83 to $13.09 for 2021. Analysts expect earnings to expand 6.7% annually over the next three to five years.

Snap-on has paid quarterly cash dividends since 1939 without interruption or reduction. In recent years, Snap-on has been aggressive in increasing its dividend, with a five-year average growth rate of 16.3%. It raised its dividend 13.7% last November. Snap-on has increased its dividend for 10 straight years.

Financial StrengthSnap-on’s ratio of total liabilities to total assets has im-

proved over the last five years and is below the industry median.

The company’s ability to pay interest is strong, as measured through the times interest earned ratio of 19.8, more than triple the industry median of 5.2.

Snap-on has an earnings payout ratio of 31.2%, slightly above its five-year average of 28.7%. The free-cash-flow payout ratio is 37.4%, also above its five-year average of 31.7%. The company generated strong operating cash flows of over $675 million over the last four quarters, while capital expenditures were $99 million.

Given its strong free cash flows and earnings coverage, the company is in a position to continue increasing its dividend payments going forward. Snap-on’s priorities for capital al-location include organic and acquisition business investment followed by capital returned to shareholders through both dividend and share repurchases.

ValuationSnap-on’s dividend yield of 3.0% is above its five-year

average range of 1.7% to 2.2%. Snap-on is trading with a reasonable trailing price-earnings

ratio of 11.6, below its five-year average of 15.7 and below the industrial machinery and equipment industry median of 22.9. The forward price-earnings ratio is 11.5 times expected 2020 earnings and 11.0 times consensus 2021 earnings.

RisksSnap-on relies on sales to customers in cyclical industries.

An economic slowdown will impact sales and profits. Some slowdown was seen in sales to auto dealer repair shops. Snap-on is largely vertically integrated and manufactures around 70% of the tools sold. An increase in steel costs will impact margins if costs cannot be passed on through higher prices.

Higher fuel costs can hurt franchisees that rely on mobile showrooms to demo and sell products. Snap-on relies on franchisees to sell its goods and needs to attract and retain a quality network to serve its markets. Snap-on sales are especially strong with independent repair shops. That strategy may not work as well in emerging markets. ▪

snap-on Incorporated (sNA)

Bullish Factors• Strong dividend growth and attractive dividend yield

relative to historical norm• Leading brand in professional hand tools, diagnostic

equipment, power tools and tool storage• Growth sought in aerospace, industrial and oil and gas

industries, where costs and penalties of failure are high

Bearish Factors• Operates in a cyclical and competitive marketplace• Sales hurt by Brexit turmoil and currency impact• Growth tied to expansion to new international markets

March 2020 13


Addition Alert Date: 9/7/2018Price at Alert: $180.60 Risk Index: 1.72Market Cap (Million): $8,128.4Avg Daily Dollar Volume (Million): $64.6Primary Sector: IndustrialsPrimary Industry: Industrial Machinery & Equipment

Indicated Annual Dividend: $4.32 Multiples Current 12/2019 12/2018 12/2017 12/2016 1/2016Latest Dividend Increase: Date Dividend Yield (%): Avg 3.0 2.5 2.1 1.8 1.6 1.4Latest Dividend Increase: % 13.7% Dividend Yield (%): High 2.8 2.5 2.1 1.9 1.7Dividend Yield: Current 3.0% Dividend Yield (%): Low 2.3 1.8 1.6 1.4 1.3Dividend Yield: 5-Year Avg (High-Low) Price/Earnings 11.6 12.7 13.6 16.7 16.9 18.7Dividend Paid Since: 1939 Price/Earnings (Industry) 22.9 23.0 23.3 28.1 23.7 18.7Number of Years of Div Increases: 10 Price/Book Value 2.3 2.6 3.0 3.1 3.5 3.7Direct Invest Option: Yes Price/Sales 1.9 2.1 2.3 2.3 2.4 2.5DRIP Plan: Yes Ratios Current 12/2019 12/2018 12/2017 12/2016 1/2016Declared Ex-Div Date Payable Amount Payout Ratio: EPS (%) 31.2 31.2 28.2 30.4 27.0 26.7




Financial Statements TTM 12/2019 12/2018 12/2017 12/2016 1/2016Growth 5 Year Sales ($M) 4,068 4,068 4,070 4,000 3,712 3,593Dividends 16.3% Gross Income ($M) 2,182 2,182 2,200 2,138 1,991 1,889Sales 3.1% Depreciation & Amort. ($M) 92 92 94 93 86 83Net Income 10.5% Unusual/Extra ($M) (12) (12) 8 -- -- --EPS Basic 11.6% Operating Income ($M) 962 962 948 882 854 765EPS Dil Cont 11.7% Interest Expense ($M) 49 51 50 52 52 52

Pretax Income ($M) 922 922 910 822 801 711SUE Score Net Income ($M) 694 694 680 558 546 479

0.00 Operating Cash Flow ($M) 675 675 765 609 576 4970.50 Investing Cash Flow ($M) (222) (222) (210) (341) (473) (306)

Annual Financing Cash Flow ($M) (409) (409) (502) (256) (116) (226)12/2021 Capital Expenditures ($M) 99 99 91 82 74 80

9 Net Cash Flow ($M) 44 44 49 14 (15) (40)$13.09 EPS Basic ($) 12.58 12.59 12.08 9.72 9.40 8.24$12.86 EPS Diluted Cont ($) 12.41 12.41 11.93 9.64 9.20 8.10

# Rev Up 0 EPS DC Year/Year Chg (%) 4.0 4.0 23.8 4.8 13.6 13.5 # Rev Down 1 Dividends/Share ($) 3.93 3.93 3.41 2.95 2.54 2.20Three Mos. Ago $12.83 Dividend Year/Year Chg (%) 15.2 15.2 15.6 16.1 15.5 18.9Year/Year Chg 4.7% Free Cash Flow/Share ($) 10.50 10.44 11.96 9.17 8.64 7.16

12/2019 9/2019 6/2019 3/2019 Total Cash ($M) 185 185 141 92 78 93$3.07 $2.96 $3.22 $3.16 $12.41 Goodwill/Intangibles ($M) 1,158 1,158 1,135 1,178 1,265 985$3.08 $2.88 $3.11 $2.87 $11.94 Total Assets ($M) 5,694 5,694 5,373 5,249 4,723 4,331

Long-Term Debt ($M) 947 957 946 754 709 86212/2019 9/2019 6/2019 3/2019 Total Total Liabilities ($M) 2,284 2,284 2,274 2,295 2,106 1,918$18.96 $17.93 $18.76 $18.15 $73.79 Book Value/Share ($) 62.21 61.87 55.04 51.46 45.05 41.53$18.53 $17.42 $18.38 $17.96 $72.30 Avg Shares Outst'g (M) 54.80 55.10 56.30 57.40 58.10 58.10


0.8%

9

14

$3.16

1

$12.737

Annual12/2020

$3.16 $12.72$3.07 $12.51

Year Ago

TTM

TTMSales/Sh (Qtr)

Quarterly

EPS (Qtr)

Year Ago

CurrentMonth Ago

3/20208

(2.8%)

$2.96

Est Surprise


Oct 17, 2019Feb 6, 2020

% Surp0.0%0.6%

Index

Feb 22, 2019

4.0%

15.7%3.1%8.3%10.2%10.5%

15.2%(0.1%)

TTM

Gain

2.0%4.2%

EPS$3.08

Feb 14, 2019Nov 8, 2018 Nov 19, 2018

(11%)(10%)(3%)

(10%)

Stock

1.9% (2.2% - 1.7%)

0.94

Snap-on Incorporated is a manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions. The company's segments include the commercial & industrial group, the Snap-on tools group, the repair systems & information group and financial services. The commercial & industrial group serves a range of industrial and commercial customers including customers in the aerospace, natural resources, government, power generation, transportation and technical education markets.The Snap-on tools group primarily serves vehicle service and repair technicians. The repair systems & information group serves other professional vehicle repair customers. The financial services segment consists of Snap-on's finance subsidiaries.

Apr 25, 2019

Feb 13, 2020Nov 8, 2019Aug 8, 2019 Aug 19, 2019

Nov 19, 2019Feb 21, 2020

Mar 11, 2019Dec 10, 2018

Nov 8, 2019

May 20, 2019

0.84

3 Year

Mar 10, 2020Dec 10, 2019Sep 10, 2019

0.97

Jun 10, 2019

Rel Strgth

0.95

0%

1%

2%

3%

4%

5%

6%


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Div

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sNA $144.14 ($174.00 - $140.25)

14 March 2020

Tyson Foods, Inc. (TsN)Tyson Foods Inc. is one of the world’s largest meat produc-

ers, supplying one out of five pounds of all the chicken, beef and pork in the U.S. Tyson’s portfolio includes Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright Brand, Golden Island, Aidells and State Fair.

Tyson operates through four segments: chicken, beef, pork and prepared foods. It operates a vertically integrated chicken production process, which consists of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related prod-ucts, including animal and pet food ingredients. Its products are marketed and sold by its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores and military commissaries, among others.

Growth TrendsRevenue for Tyson has increased, on average, by 2.4% a

year over the last five years and by 4.8% a year over the last three years. Revenues increased by 7.5% over the trailing 12 months.

Net income has seen stronger growth over the last five years, expanding on average by 18.5% a year. Over the last three years, net income has seen average growth of 4.6% a year. In the previous 12 months, net income has risen by 4.3%.

Tyson operates in a competitive and relatively low-margin industry. Its gross profit margin is 11.9% and its operat-ing margin is 6.7%, compared to the median values for the companies in the food processing industry of 29.3% and 5.7%, respectively.

Tyson reported earnings that were in line with analyst expectations on February 6, 2020. Analysts are expecting pro forma earnings to increase 13.6% for the fiscal year ending September 2020 compared to the prior year. However, ana-lysts are also projecting 13.7% earnings growth for the fiscal year ending September 2021. Three analysts are expecting

earnings to grow by 9.0% a year over the next three to five years.

Late last year Tyson received approval to ship chicken from all its U.S. processing plants after China lifted a nearly five-year ban on imports.

Tyson has paid a cash dividend since 1976. In recent years, Tyson has been aggressive in increasing its dividend, with a five-year compound annual growth rate of 38.0%. It raised its dividend 12.0% last August. Tyson has increased its dividend for eight straight years, after many years without increases.

Financial StrengthThe ratio of total liabilities to total assets has been relatively

stable over the last five years and now stands at 57.4%, which is slightly below the company’s five-year average and slightly above the industry median of 53.7%.

The company’s ability to pay interest is strong, as measured by the times interest earned ratio of 6.1, nearly twice the industry median.

Tyson has a current earnings payout ratio of 27.7%, above its five-year average of 17.3% but low overall. The company has a free-cash-flow payout ratio of 43.6%, which is also above its five-year average of 22.1%. Tyson generated pre-dividend free cash flow per share of $3.54 over the trailing 12 months, which more than covers the annual indicated dividend of $1.68 per share.

ValuationTyson’s dividend yield of 2.5% is above its five-year average

yield of 1.4%. The relatively high yield reflects the aggressive dividend increases over the last seven years as well as the re-cent weakness in Tyson shares. The 10% stock price increase over the last year ranks in the 76th percentile among all U.S. stocks.

Tyson is trading with a reasonable trailing price-earnings ratio of 12.3, which is slightly below its five-year average of 13.9 but well below the food processing industry median of 19.6. The forward price-earnings ratio is 10.8 times expected 2020 earnings and 9.5 times 2021 projected earnings.

RisksTyson is a large producer of chicken, pork and beef, which

provide it economies of scale, but these are largely commod-ity items, which limit pricing power. Tyson’s results are im-pacted by overall agricultural commodity trends such as feed costs, market demand and fuel costs. Tyson has strengthened its packaged foods business, which now accounts for nearly a third of its profits. Wal-Mart Stores, its largest customer, accounts for roughly 17% of sales. Last year, Walmart Inc. (WMT) announced it partnered with a Texas cattle rancher and other industry-related businesses to provide Angus beef to 500 of its U.S. stores. ▪

Bullish Factors• Strong dividend growth and attractive dividend yield

relative to historical norm• Largest producer of beef, chicken and pork in the U.S.• Seeking growth and higher margins with expansion in

the packaged food business

Bearish Factors• Operates in competitive, low-margin commodity

marketplace• U.S. trade negotiations carry export risk for Tyson’s

products• Expanding international presence through acquisitions

carries integration risk and risk of overpaying for growth

March 2020 15


TsN $68.50 ($94.24 - $62.58)Addition Alert Date: 3/8/2019Price at Alert: $62.78 Risk Index: 2.17Market Cap (Million): $25,749.8Avg Daily Dollar Volume (Million): $200.9Primary Sector: Consumer Non-CyclicalsPrimary Industry: Food Processing

Indicated Annual Dividend: $1.68 Multiples Current 9/2019 9/2018 9/2017 10/2016 10/2015Latest Dividend Increase: (Date) Dividend Yield (%): Avg 2.5 2.0 1.8 1.3 1.0 0.9Latest Dividend Increase: (%) 12.0% Dividend Yield (%): High 2.8 2.4 1.6 1.2 1.1Dividend Yield: Current 2.5% Dividend Yield (%): Low 1.6 1.5 1.1 0.8 0.7Dividend Yield: 5-Year Avg (High-Low) Price/Earnings 12.3 13.2 12.0 14.8 13.8 15.5Dividend Paid Since: 1976 Price/Earnings (Industry) 19.6 22.6 22.5 23.8 22.8 23.0Number of Years of Div Increases: 8 Price/Book Value 1.7 1.9 1.9 2.5 2.5 1.9Direct Invest Option: Yes Price/Sales 0.6 0.6 0.6 0.7 0.7 0.5DRIP Plan: No Ratios Current 9/2019 9/2018 9/2017 10/2016 10/2015Declared Ex-Div Date Payable Amount Payout Ratio: EPS (%) 27.7 26.9 14.5 18.6 13.1 13.3





Dividends 38.0% Gross Income ($M) 5,116 5,022 5,096 5,118 4,697 3,917Sales 2.4% Depreciation & Amort. ($M) 1,136 1,098 943 761 705 711Net Income 18.5% Unusual/Extra ($M) 30 (14) 59 150 -- --EPS Basic 17.9% Operating Income ($M) 2,901 2,882 3,032 2,931 2,833 2,169EPS Dil Cont 18.6% Interest Expense ($M) 483 462 350 279 249 293

Pretax Income ($M) 2,443 2,431 2,745 2,628 2,598 1,921SUE Score Net Income ($M) 2,028 2,022 3,024 1,774 1,768 1,220

0.00 Operating Cash Flow ($M) 2,539 2,513 2,963 2,599 2,716 2,570(0.40) Investing Cash Flow ($M) (1,396) (3,464) (1,906) (4,164) (684) (270)

Annual Financing Cash Flow ($M) (1,047) 1,171 (1,102) 1,530 (2,377) (2,035)9/2021 Capital Expenditures ($M) 1,253 1,259 1,200 1,069 695 854

13 Net Cash Flow ($M) 97 214 (48) (31) (339) 250$7.20 EPS Basic ($) 5.58 5.57 8.29 4.85 4.59 3.01$7.28 EPS Diluted Cont ($) 5.58 5.57 5.53 4.80 4.53 2.95

# Rev Up 1 EPS DC Year/Year Chg (%) 5.1 0.7 15.4 5.8 53.5 24.4 # Rev Down 5 Dividends/Share ($) 1.55 1.50 1.20 0.90 0.60 0.40Three Mos. Ago $7.33 Dividend Year/Year Chg (%) 21.2 25.0 33.3 50.0 50.0 33.3Year/Year Chg 13.7% Free Cash Flow/Share ($) 3.54 3.45 4.83 4.18 5.25 4.24

12/2019 9/2019 6/2019 3/2019 Total Cash ($M) 497 484 270 318 349 688$1.53 $1.02 $1.86 $1.17 $5.58 Goodwill/Intangibles ($M) 17,837 17,881 16,498 15,567 11,753 11,835$1.51 $1.48 $1.48 $0.84 $5.31 Total Assets ($M) 33,811 33,097 29,109 28,066 22,373 23,004

Long-Term Debt ($M) 9,772 9,830 7,962 9,297 6,200 6,01012/2019 9/2019 6/2019 3/2019 Total Total Liabilities ($M) 19,392 19,015 16,306 17,525 12,765 13,313$29.79 $29.98 $29.99 $28.69 $118.45 Book Value/Share ($) 39.72 38.79 35.08 28.80 24.96 23.93$28.00 $27.62 $27.54 $26.70 $109.86 Avg Shares Outst'g (M) 363 363 365 366 385 405



Month Ago

Aug 8, 2019

0.3%(5.9%)Annual

4.6%

Sep 13, 2019

11

$6.59$1.09

14$6.33

$1.26Current

EPS (Qtr)

6$6.75

(7.0%)

05

$1.44

2

13.6%

Year Ago

TTM

TTMSales/Sh (Qtr)

Year Ago

3/2020Quarterly

Stock

0.800.72

0.90(18%)(24%)

9/2020

3 Year

10%

4.3%

5.1%

EPS

Nov 12, 2019

% Surp

Gain

35.7%4.8%

TTM21.2%7.5%

4.6%

Index

$1.66$1.21

Feb 6, 2020

7.1%6.6%

1.03

Tyson Foods Inc. is one of the world’s largest food companies, engaged in offering chicken, beef and pork, as well as prepared foods. Tyson offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. It operates a vertically integrated chicken production process, consisting of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, the company is also engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products.

May 9, 2019 Aug 29, 2019

Rel StrgthNov 12, 2018 Feb 28, 2019

Feb 5, 2020Nov 11, 2019Aug 8, 2019 Nov 27, 2019

Feb 27, 2020May 29, 2020

Jun 14, 2019

Est Surprise

Mar 15, 2019May 30, 2019Feb 6, 2019

(26%)

1.4% (1.8% - 1.1%)

Jun 15, 2020Mar 13, 2020Dec 13, 2019

0%

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Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019

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16 March 2020

the S&P 500 has averaged 2.9% since 1960.Charts provide a visual feel for whether or not the markets

are currently at a reasonable level. Valuation models help to actually estimate the appropriate level of the market based upon historical relationships. The current indicated dividend of the S&P 500 at the end of February 2020 is $58.24. Dividing the indicated dividend of $58.24 by the average dividend yield of 2.92% (0.0292 in decimal form) leads to a valuation of 1,994.52—well below the February 2020 month-end S&P 500 level of 2,954.22. If we assume that the long-term average yield is a reasonable required dividend yield, then the market was still overvalued at the end of February using this model.

The average dividend yield of 2.92% used in the dividend valuation model may be a bit high in the current marketplace, as companies have increased share buybacks. Adjusting the dividend yield model for share buybacks might provide inter-esting perspective.

As the World Turns The dividend yield appears to bump against invisible barri-

ers, but the range changes over time. In the 1960s and early 1970s, dividend yields below 2.9% coincided with market tops. Market bottoms roughly coincided with yields above 3.7%, but the market bottom yield marker steadily rose over that time period, matching the general increases in interest rates. The severity of the 1973–1974 bear market is highlight-ed by the increase in dividend yields to nearly 6.0% as infla-tion hit double digits. Six percent seemed to mark the high range through the 1970s and early 1980s. Notably, the market bottomed out in August of 1982, with dividend yields going above 6.0% as the rate of inflation dropped meaningfully.

The yield declined sharply through the bull market until it broke the 2.9% level in 1987 just before the market crash in

October. The yield returned to a 3% to 4% range during the correction. The long secular bull market of the 1990s marked a dramatic shift in investor preference for capital growth potential over the cer-tainty of regular dividend payments. The yield of the S&P 500 shifted from a high of 4.0% after Iraq invaded Kuwait in 1990 to a low of 1.1% just before the dot-com bubble burst in 2000. The S&P 500 yield then seemed to find a new range around 1.8% until the financial crisis hit, pushing the yield to 3.8%.

At the end of February 2020, the S&P 500 yield is 2.0%—below the average yield of 2.9% since 1960, but in line with the 2.0% average yield since the 2010s. Overall, investors are still showing a desire for stocks paying meaningful divi-dends to fulfill their demand for income. ▪

Historically, dividends have been important in market analysis because they represent direct cash flows to inves-tors. The dividend yield is the indicated annual cash dividend (most recent quarterly dividend multiplied by four) divided by the current price. Charts and financial models help you gauge if a stock or even the market is reasonably priced. Higher dividend yields indicate that dividends are high relative to the stock’s market price; in general, this is an indication of under-valuation. Lower dividend yields are a sign of overvaluation, since the dividends are low relative to the market price.

Prices, on the other hand, vary considerably. When prices rise faster than dividends, the dividend yield falls and stocks and the market approach an overvalued position. Conversely, when prices decline, dividend yields rise and stocks and the market move toward an undervalued position. The difficulty lies in determining when the yield is approaching an extreme position. It helps to compare the current yield to the historical norm to determine if the current yield is high or low.

An additional comparison can be made of the dividend yield versus other yields. For instance, if the yield on bonds is falling relative to the dividend yield on common stocks, stocks become more attractive and money may move out of bonds and into stocks. The yield on 10-year Treasury notes dropped to all-time lows this week after the Federal Reserve issued an emergency rate cut by 50 basis points—to a range between 1.00% and 1.25%—in response to evolving economic risks posed by the coronavirus outbreak.

A graphical illustration of the historical dividend yield helps to highlight market extremes. The chart below displays the monthly dividend yield of the S&P 500 index along with its value since 1960. The S&P 500 is displayed in red using a semi-log scale in which equal distances represent equal per-centage changes throughout the chart. The dividend yield of

Dividend Yield Perspective Throughout History

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Div

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Average Yield(2.9%)

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S&P 500Dividend Yield

S&P 500 Index and Yield

Documents

In This Issue A Buffett of Classic Advice TBuffett’s Annual Letter to Shareholders Perhaps it was serendipitous that Warren Buffett’s annual letter to Berkshire Hathaway shareholders