It is thanksgiving, and it is the time of year to say what one is thankful for. Common things include being thankful for good health, family or relationships. The shareholders of the following companies are also thankful for the fact that their board of directors committees approved dividend increases over the past week. I have outlined the companies which looked interesting at first glance, and then provided my brief commentary behind each dividend hike.
While it may seem that just a few of these companies look like good candidates for further research, all was hopefully not a waste of time. By familiarizing themselves with as many companies as possible, income investors are developing a better judgment, which would allow them to spot div growers on the rise, and avoid dividend stocks on the decline. The companies include:
Automatic Data Processing, Inc. (ADP) provides business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. The company raised its quarterly dividend by 10.10% to 43.50 cents/share. This marked the 38th consecutive annual dividend increase for this dividend aristocrat. Yield: 3.20% (analysis)
The stock priced at 19.30 times earnings and yields 3.20%. ADP is trading at close to the 20 times earnings mark, which is at the high range of what I am willing to pay for a quality income stock. In addition, the dividend payout ratio is at 61.50%, which is at the top of the range for me. That being said, I do like the recurring nature of the business and plan on adding to my position subject to availability of funds.
The Laclede Group, Inc. (LG), through its subsidiaries, engages in the retail distribution, sale, and marketing of natural gas. The company raised its quarterly dividend by 2.40% to 42.50 cents/share. This marked the 10th consecutive annual dividend increase for this dividend achiever. Yield: 4.50%
The company has managed to boost distributions at a rate of only 1.90%/year. The company is attractively valued at 14.20 times earnings and has a low dividend payout ratio for a utility company of only 63%. However, the slow growth in earnings and dividends makes it a hold at best.
National Bankshares, Inc. (NKSH) operates as the bank holding company for the National Bank of Blacksburg, which provides a range of retail and commercial banking services to individuals, businesses, non-profits, and local governments in Virginia. The company raised its semi-annual dividend by 2.40% to 53 cents/share. This dividend achiever has raised distributions for 11 years in a row. Yield: 3.90% (analysis)
The stock is attractively valued at 11.30 times earnings, yields 3.90% and has an adequately covered distribution. National Bankshares has managed to boost dividends by 8.80%/year over the past decade. While it is cheap, and has a very good yield plus room for future dividend growth, I do not see a lot of catalysts that would propel EPS higher over the next few years. I would consider initiating a position in the stock subject to availability of funds.
Sysco Corporation (SYY), through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily to the foodservice or food-away-from-home industry. The company raised its quarterly dividend by 3.70% to 28 cents/share. This marked the 43rd consecutive annual dividend increase for this dividend champion. Yield: 3.70% (analysis)
Over the past five years, Sysco has managed to boost distributions by 8.90%/year. Earnings per share have increased from $1.20 in 2003 to $1.91 by 2012. Analysts are expecting a moderate increase in earnings to $1.94/share in 2013 and $2.12/share by 2014. Currently, the shares at attractively priced at 15.90 times earnings, and the dividend yield of 3.70% is adequately covered from net income. Unfortunately, without a strong growth in earnings, future dividend growth will be limited as well. I would monitor the situation, but for not I would likely refrain from adding any new funds to this position.
Brown-Forman Corporation (BF-B) engages in manufacturing, bottling, importing, exporting, and marketing alcoholic beverages. The company raised its quarterly dividend by 9.30% to 25.50 cents/share. This marked the 29th consecutive annual dividend increase for this dividend champion. Yield: 1.60% (analysis)
The company has a ten year annual dividend growth rate of 9.50%. The company’s prospects to deliver future dividend growth are promising and supported by growth in earnings. Unfortunately, the company is trading at 25.90 times earnings and yields only 1.60%. I would consider adding to my position in the stock at much lower levels than todays.
MDU Resources Group, Inc. (MDU) operates as a diversified natural resource company in the United States. The company generates, transmits, and distributes electricity, as well as distributes natural gas. The company raised its quarterly dividend by 3% to 17.25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend champion. Yield: 3.50%
The company has a ten year annual dividend growth rate of 5.10%. The stock is trading at 17.20 times forward earnings, and has a dividend payout ratio of 59.50%. Unfortunately, given the slow growth in earnings over the past decade, I do not expect dividend growth to be above the rate of inflation. As a result, the dividend yield is not sufficient to compensate for the fact that your dividend dollars will be losing purchasing power because of inflation. I would consider the stock a hold.
Union Pacific Corporation (UNP), through its subsidiary, Union Pacific Railroad Company, provides rail transportation services in North America. The company raised its quarterly dividend by 15% to 69 cents/share. This marked the 7th consecutive annual dividend increase for this dividend stock. Yield: 2.40%
The company has a ten year annual dividend growth rate of 17%. The company is attractively priced at 14.50 times earnings, and is close to yielding my minimum yield of 2.50%. I like the prospects for future earnings and dividend growth for Union Pacific.
Full disclosure: Long ADP, SYY, BF-B
- National Bankshares (NKSH) Dividend Stock Analysis
- Automatic Data Processing (ADP) Dividend Stock Analysis
- Sysco (SYY) Dividend Stock Analysis
- Dividend Champions - The Best List for Dividend Investors
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