Monday, May 6, 2013

Four Select Dividend Increases of Note

I track the list of dividend increases every week for the stocks I own. Over the past week, there were 49 companies that raised dividends. I scanned the list and focused on the ones I own as well as another that I have been patiently waiting to purchase for the past two years. Whether the market goes up or down from here, these dependable dividend payers will continue generating the earnings streams to pay a stable and rising dividend to me. The stability of dividends from quality companies who stock I hold makes retirement planning much easier. The companies include:

International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company raised quarterly distributions by 11.80% to 95 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Currently, IBM trades at 14 times earnings and yields 1.90%.

I like the fact that IBM has been able to repurchase stock consistently since 1995, although I would prefer special dividends instead. I also like the fact that IBM has been able to transform and adapt its business model, and that it has a goal to earn $20/share in 2015. Check my analysis of IBM.

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. The company raised quarterly distributions by 5.60% to 56.75 cents/share. This marked the 42th consecutive annual dividend increase for this dividend champion. Currently, PepsiCo trades at 21.10 times earnings and yields 2.80%. Check my analysis of PepsiCo.

The company has been slowing down dividend increases in the past two years, which shows management does not expect stellar performance over the next few years. I would probably hold on to PepsiCo for the next 20 – 30 years, but at this point it is price out of my buy range.

Royal Dutch Shell plc (RDS/B) operates as an independent oil and gas company worldwide. The company raised its quarterly dividend by 4.70% to 90 cents/share. This was the second year of dividend increases for the company. When dividends were frozen in 2010, this ended the company’s streak of 17 consecutive years of dividend increases. I purchased Royal Dutch Shell “B” shares after British Petroleum (BP) cut distributions in 2010. I like the company right now, especially as it is trading at 8.40 times earnings and yields 5%.

Costco Wholesale Corporation (COST) engages in the operation of membership warehouses. The company raised quarterly distributions by 12.70% to 31 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Currently the stock trades at 24.40 times earnings and yields 1.10%.

I like the company’s business model, and believe that it has excellent growth opportunities ahead.
Unfortunately, I find the stock to be overvalued at present conditions, despite the fact that I like the business a lot. If Costco misses earnings projections in a given quarter, or when we get the next bear market in stocks, chances are that I would be salivating at the attractive stock prices as I initiate a position in it. I would like to obtain it at prices significantly below 20 times earnings.

I used the dip caused by IBM’s earnings release last month to initiate a small position in the company. This year I used dips in Yum! Brands (YUM) and Family Dollar (FDO) to acquire small positions on dips caused by irrational markets. If I had spare funds right now, I would have probably added to my position in ONEOK Partners (OKS) on the dips as well.

Full Disclosure: Long IBM, PEP, YUM, FDO, OKS, RDS/B

Relevant Articles:

Royal Dutch Shell – An Undiscovered Dividend Gem
IBM (IBM) Dividend Stock Analysis
PepsiCo (PEP): A Better Value than Coca Cola (KO)
Dividend Achievers Offer Income Growth and Capital Appreciation Potential
Dividend Champions - The Best List for Dividend Investors

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