State Street is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 27 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 9.40 % to its shareholders.
At the same time company has managed to deliver an 11.20% average annual increase in its EPS since 1998.
The ROE has decreased from the 19%-27% range to 14%-17% range over the past 10 years.
Annual dividend payments have increased over the past 10 years by an average of 14.90% annually, which is higher than the growth in EPS. A 15% growth in dividends translates into the dividend payment doubling almost every 5 years. If we look at historical data, going as far back as 1987, STT has indeed managed to double its dividend payment every five years on average. State Street is the only Dividend Aristocrat that has consistently managed to increase its quarterly dividends twice per year.
If we invested $100,000 in STT on December 31, 1997 we would have bought 3492 shares (Adjusted for a 2:1 stock split in May 2001). In March 1998 your quarterly dividend income would have been $209.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $937.20 by June 2008. For a period of 10 years, your quarterly dividend income would have increased by 300%. If you reinvested it though, your quarterly dividend income would have increased by 347%.
The dividend payout has slowly increased from upper teens to mid twenties over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that STT is attractively valued with its low price/earnings multiple of 16 and low DPR even though the yield is below my 2% threshold. The historical dividend yield has not even gone close to 2% over the past ten years however. The strong dividend and earnings growth justify the lower current yield.
I believe that STT is a buy and could be accumulated on dips below $69 based off P/E and especially below $48 based off yield as it provides some dividend growth diversification potential for any income portfolio.
Disclosure: I do not own shares of STT