The decrease in interest rates over the past four years has placed a strain on retirees who traditionally relied on bonds for income in retirement. With 30 year bonds yielding 2.80% and fears of rampant inflation many of these individuals are increasingly investing their assets in dividend paying stocks. Dividend paying stocks provide a tax efficient stream of income as well as the possibility for dividend increases over time, which will provide a hedge against inflation.
Over the past week, several dividend growers announced their plans to boost distributions to shareholders. I have listed companies which have boosted distributions for over five years in a row, along with my brief comment behind each. The companies include:
Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. The company raised its quarterly distributions by 7.30% to 44 cents/share. Altria is a dividend champion, which has raised distributions for 44 years in a row. Yield: 5.10% (analysis)
Altria’s new annual dividend comes out to $1.88/share. Looking at projected earnings per share of $2.20 for 2012 and $2.37 in 2013, this represents a forward dividend payout ratio of 85% and 79% respectively. While I tend to avoid stocks with high dividend payout ratios, I typically make exceptions on a case by case basis after analyzing the specific situation. In Altria’s case, the company does not need to invest a lot in in order to grow the business, because of the regulatory environment. Tobacco companies cannot advertise, and cigarette usage has been flat or declining slightly in the US. As a result, the company does not need to invest in new factories. However, it does invest in efforts to contain costs and continuously improve and streamline operations in order to lower expenses. In addition, a large part of the sale price for cigarettes is actually excise taxes, whereas the portion that tobacco companies get to collect is relatively small. Given the high margins that cigarette manufacturers enjoy, and the fact that they can keep raising prices to more than offset against declines in consumption, companies like Altria are almost guaranteed increased profits for years to come. So essentially, Altria generates a lot of cash every year, with not a lot of options to spend it. It typically spends cash on share buybacks and dividends.
As a result, I would consider adding to my position in Altria subject to availability of funds.
Harris Corporation (HRS), together with its subsidiaries, operates as a communications and information technology company that serves government and commercial markets worldwide. The company raised its quarterly distributions by 12.10% to 37 cents/share. This is the second dividend increase in a year. Harris Corporation is a dividend achiever, which has raised distributions for 11 years in a row. Yield: 3.10%
Over the past decade, Harris has been able to boost dividends at 26.60%/year. It is currently attractively priced at 9.80 times earnings and has adequately covered dividends. I have included the $3.62 non-cash charge recorded in Q2 2012 into EPS, since it represents a one-time event that does not affect EPS from continuing operations. Analysts are also expecting EPS to rise to $5.17 in 2013 and $5.29 by 2014. I would add the company to my list for further research.
BancFirst Corporation (BANF) operates as the holding company for BancFirst that provides commercial banking services to retail customers and small to medium-sized businesses in Oklahoma. The company raised its quarterly distributions by 7.40% to 29 cents/share. BancFirst Corporation is a dividend achiever, which has raised distributions for 19 years in a row. Yield: 2.80%
The company is attractively valued at 12.80 times earnings and has an adequately covered dividend. In addition, BancFirst has managed to boost distributions by 11%/year over the past decade. The company has also managed to increase profitability over the past decade. Analysts are also expecting EPS to rise to $3.18 in 2012 and $3.20 by 2013. I would add it to my list for further research.
Full Disclosure: Long MO
- Altria (MO) Dividend Stock Analysis
- Dividend Champions - The Best List for Dividend Investors
- Dividend Achievers Additions for 2012
- Dividend Stocks Offering Positive Feedback to Investors
- Margin of Safety in Dividends
One of the advantages of being a dividend investor is that I invest in businesses that meet a certain qualitative and quantitative criteria...
I like to invest in quality companies, with an established track record of dividend increases. I want to acquire these quality companies at ...
This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog ...
A dividend king is a company that has managed to increase dividends every single year for at least 50 years in a row. There are only 20 com...
Another year has passed here in dividend growth investing land. This was a year with a lot of changes for me. It is time to evaluate what ha...
Today marks the ninth birthday of the Dividend Growth Investor blog. It is unreal that I have managed to keep this up for 9 years in a row. ...
I wanted to thank you all for reading the Dividend Growth Investor website. This site is a result of my efforts to improve my investing over...
CVS Health Corporation (CVS), together with its subsidiaries, provides integrated pharmacy health care services. It operates through Pharmac...
Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. This dividend champion has paid dividends since 1977...
The J. M. Smucker Company (SJM) engages in manufacturing and marketing branded food products primarily in the United States, Canada, and int...