Monday, November 8, 2010

Three Dividend Growth Stocks raising the bar

Investors, who want to be treated as owners of a business, should focus on buying and holding onto solid businesses that throw excess cash every year, while still growing at a decent pace. Investing in stocks should not be any different than investing in a business. Purchasing quality stocks with stability in earnings that can pay rising distributions, while also growing the business, will result in a positive return on investment during any market condition or economic cycle. Companies which consistently are able to generate rising incomes in order to support a consistent dividend growth are rare gems, yet they sell products or services that most consumers and businesses use fairly often.

Three companies which have raised distributions for over five years in a row and which raised distributions last week include:

Universal Corporation (UVV), together with its subsidiaries, operates as the leaf tobacco merchants and processors worldwide. The company raised its quarterly dividend by 2.10% to 48 cents/share. This dividend champion has consistently raised dividends for 40 years in a row. Yield: 4.40% (analysis)

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. The company raised its dividends by 3% to 34.50 cents/share. Emerson is a member of the dividend aristocrats index, and has consistently raised dividends for 54 years in a row. Yield: 2.40% (analysis)

Aaron’s, Inc. (AAN) operates as a specialty retailer of consumer electronics, computers, residential and office furniture, household appliances, and accessories in the United States and Canada. The company raised its quarterly dividend by 8.30% to 1.30 cents/share. Aaron’s has regularly raised dividends since 2003. Yield: 0.30%

Of the three companies listed above, I view only Universal (UVV) as a buy candidate at current prices. The company not only has an above average dividend yield, but also has a sustainable dividend payout ratio. Emerson Electric (EMR) on the other hand has slowed down on distributions increases in the past few years, as it was hit by the recession. In addition to that it is yielding less than my minimum yield requirement of 2.50%. The problem with Aaron’s (AAN) is also its very low yield, caused by its low payout ratio.

Full Disclosure: Long UVV and EMR

Relevant Articles:

- 33 Dividend Champions to Consider
- Is Buy and Hold Dividend Investing dead?
- How to make money in dividend stocks despite WallStreet
- Buy and hold dividend investing is not dead

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