Investing in ETFs to Track the S&P 500 or the Nasdaq 100

Investing in ETFs becomes really popular in the last few years. But, do you know, what are you buying when you are investing in an S&P500 or Nasdaq 100 ETF?

If I want to put $10,000 into S&P 500, I will invest $365 in Apple (AAPL), $260 in Microsoft (MSFT), $190 in Amazon (AMZN), $177 in Facebook (FB), $170 in Johnson & Johnson (JNJ), $164 in ExxonMobil (XOM) and the rest of the sum into another 494 companies. So the S&P 500 index is not equally weighted. The weight of the six largest members are 13.26%.

If you are curious about the full list you can read here: S&P 500 Companies by Weight.

The Nasdaq 100 shows greater concentration than S&P 500, and the weight of the six largest members are 42.01%.

If I want to put $10,000 into it, I will invest $1,160in Apple (AAPL), $826 in Microsoft (MSFT), $727 in Amazon (AMZN), $561 in Facebook (FB) $927 in Alphabet (GOOG and GOOGL) and the rest of the sum into another 94 companies.

You can read the full list of Nasdaq 100 here: Nasdaq 100 Companies.

Disclosure: Long XOM.

A Good Article to Read: Buying Stocks Solely For Dividend Yield Is a Poor Bet

What are the main variables of the return you receive from a stock? The return of a stock depends on three variables: earnings growth, P/E change, and dividends. You need all of them for a good return. If you think that you need only a good dividend yield, I recommend you to read the Marketwatch article: Buying stocks solely for dividend yield is a poor bet.

Nike – Fiscal 2017 Fourth Quarter and Full Year Results

Nike (NKE) reported fiscal 2017 fourth quarter and full year results yesterday. The company presented really good growth.

• Fourth quarter revenues up 5 percent to $8.7 billion; 7 percent growth on a currency-neutral basis*
• Fourth quarter diluted earnings per share increased 22 percent to $0.60
• Fiscal 2017 revenues up 6 percent to $34.4 billion; 8 percent growth on a currency-neutral basis*
• Fiscal 2017 diluted earnings per share increased 16 percent to $2.51

Nike closed at $53.17 yesterday. If I calculate with the newly reported diluted earnings per share, it has a 21.18 P/E ratio.

As I'm looking at these growth numbers, I'm seeing a wonderful company, so I happily hold my shares and collect my dividends.

Disclosure: Long Nike.

Related Posts:

• Nike - A Fairly Valued Share

Archer Daniels Midland – A Fairly Valued Dividend Growth Stock

The company founded in 1902 as Daniels Linseed Co. in Minneapolis, and changed name to Archer Daniels Midland Company in 1923. Today, they are one of the world's largest agricultural processors and food ingredient providers, with more than 32,000 employees in more than 160 countries. The company's primary business segments are Agricultural Services, Corn Processing, Oilseeds Processing and Wild Flacors and Specialty Ingredients.

Archer Daniels Midland (ADM) is a dividend aristocrat, which increased it's dividend in the last 41 years. So I think it has really good track record to look at it's numbers.

ADM increased it's revenue from $44.018 billion to $62.346 billion over the period spanning fiscal years 2007 to 2016. That's a compound annual growth rate (CAGR) of 3.94%. 

 

Over the same 10-year period, the company's diluted earnings per share decreased from $3.30 to $2.16, which is a CAGR of -4.60%.

It's not so impressive, but take a look at a little longer period. ADM increased it's diluted EPS from $0.76 to $2.16 over the period spanning fiscal years 2004 to 2016. That's a compound annual growth rate (CAGR) of 9.09%. I saw that the company's EPS showing great changing from one year to another.

Despite of the changing EPS, the company is paying out a much more predictable dividend. As I mentioned earlier the company increased it's dividend in the last 41 years, with a ten year CAGR 12.08%. The dividend yield is 3.11% with the last closing price. ($41.14) It's higher than the ADM's five year average. (2.4%)

The payout ratio is 51.20% now, which is managable.

Because of the decreasing EPS and increasing dividend the payout ratio increased constantly in the last 10 years. (In the fiscal year 2007 the payout ratio was only 13.03%.)

The Debt/Equity ratio is 0.42, which is really good.

ADM has a 17.4 P/E ratio, which is slightly lower than the ADM's five year average (18.1) and it's below the stock market's P/E ratio. The forward P/E ratio is 13.92, so the company is expecting a better financial performance in fiscal year 2017, than in 2016.

What is the value of ADM?

I valued shares using the dividend discount model. I factored in a 10% discount rate and a long-term dividend growth rate of 7%.

That growth rate is roughly on par with the company’s long-term EPS growth rate, and I think it’s reasonable when also looking at the recent dividend growth or payout ratio. The DDM analysis gives me a fair value of $42.67.

Disclosure: I have no position in ADM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Dividend Increase - Kroger

Kroger (NYSE: KR) announced that its Board approved a dividend increase from 48¢ to 50¢ per year. The next quarterly dividend of 12.5 cents per share will be paid on September 1, 2017, to shareholders of record on the close of business on August 15, 2017.

This means, that my YOC increased from 2.27% to 2.37%.

I think that today's prices offer a great opportunity for the management to repurchase the shares of the company. That's why I'm really satisfied with the announced $1 billion share repurchase program.

Related Posts:

• Recent Buy - Kroger

Disclosure: Long KR.

Coca-Cola – An Overvalued Dividend Aristocrat

Coca-Cola (KO) is a wonderful company and made many investor rich. KO has been increasing it's dividend since 1963. Everybody knows it's powerful brands and I think that it will be in the business in the next decades.

Because of the low interest rates more and more investors are looking for safe investments with a small, but stable yield. My opinion, that this reflects in the valuation of Coca-Cola. The dividend yield of KO is 3.27%, which is much higher than the yield of a bank account. But will it be a good investment?

KO has a 31.8 P/E ratio, which is much higher than the KO's five year average. (22.7)

The company's revenue decreased in the last five years from $48,017 million to $41,863 million. The diluted EPS decreased at the same time frame from $1.97 to $1.49. If this decreasing is not changing it will be more and more difficult to pay out such a high dividend. 

KO pays out $1.40 in the last financial year. The payout ratio of the company is 83.6%, so I think there is only a small space to increase it's dividend.

I think that the valuation is not reflecting the growth characteristics of Coca-Cola, so I won't buy it at today's prices.

Full disclosure: Long PEP.

Recent Buy – Kroger

The Kroger Company (KR) operates supermarkets, multi-department stores, jewelry stores, pharmacies, fuel centers and convenience stores in the United States.

This week was really interesting. On Thuesday Kroger decreased the earnings guidance, on Friday Amazon (AMZN) announced to buy Whole Foods (WFM) for $13.7 billion. What was the reaction? The price of the Kroger shares was falling as a stone. It made me curious, so I looked through the company's financials.

Kroger Co. increased it's revenue from $70.235 billion to $115.337 billion over the period spanning fiscal years 2007 to 2016. That's a compound annual growth rate (CAGR) of 5.67%.

Over the same 10-year period, the company's diluted earnings per share grew from $0.84 to $2.05, which is a CAGR of 10.42%. I think that it's really impressive from such a large company, so take a look at it's dividend.

The company increased it's dividend in the last 11 years, with a ten year CAGR 13.85%. The dividend yield is 2.15% with the Friday's closing price. ($22.29) The payout ratio is really low, it's only 21.60%.

What is the valuation of Kroger Co.?

It has a TTM P/E 10.81, which is greatly below the stock market's P/E ratio. The Debt/Equity ratio is 2.10, which is not so great, but I think it's managable.

I think that the stock market overreacted the Amazon's transaction, and the Kroger Co. proved in the last 10 years that it can improve it's business. The company is buying back it's shares, so the recent decrease of the stock price is not just a good opportunity to buy the shares of this really good company, but it's a good opportunity for the company to buy back it's own shares to improve the shareholder's return.

On Friday I bought a few shares of Kroger Co. at $21.10 which gives me a 2.27% dividend yield.

Full disclosure: Long Kroger.