Monday, November 25, 2013

These Dividend Growth Stocks Increased Distributions to Shareholders

There were many companies that increased dividends in the past week. I skimmed the list, and narrowed it down by eliminating any company yielding less than 2% and only having a minimal dividend growth below the historical rate of inflation. The list is further narrowed down by removing any company that has not raised distributions for at least five years in a row.

This meant that companies like Brown-Forman (BF.B), which raised dividends by 13.80% to 29 cents/share, were excluded, because they yielded 1.50%. As a holder of Brown-Forman stock I am happy with that, despite the fact that shares are currently overvalued at 25.60 times forward earnings. Given the steady increase in distributions for 30 years in a row however, this dividend champion is a hold, but not a buy at these prices.

The companies that met the criteria included:

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. The bank raised its semi-annual dividend to 58 cents/share. This marked the 15 consecutive annual dividend increase for this dividend achiever. Over the past decade, National Bankshares has managed to boost dividends by 8.50%/year. The stock is attractively valued at 14.60 times earnings and yields 3.20%. I analyzed National Bankshares last year, but never really did anything about it. While the stock is a buy, I found other shares in the past 18 months which seemed better places for my money.

Lancaster Colony Corporation (LANC) manufactures and markets consumer products focusing primarily on specialty foods for the retail and foodservice markets in the United States. The company boosted its quarterly dividend by 10% to 44 cents/share. This marked the 52nd consecutive annual dividend increase for this dividend king. Over the past decade, Lancaster Colony has managed to boost dividends by 6.70%/year.  The stock looks pricey at 21.40 times forward earnings, and at a current yield of 2.10%. I would need to add it to my list for further research.

The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. The company raised quarterly distribution by 3.75% to 38 cents/share. Williams has raised dividends for 11 years in a row. Since 2011, this dividend achiever has actually managed to boost distributions every single quarter. As a result, the new dividend is 16.90% above the dividend paid in Q4 2012. The really interesting part is that Williams Companies (WMB) expects to hike dividends to $1.75/share in 2014 and $2.11/share by 2015. Over the past decade, Williams has raised dividends by 11%/year. The stock yields 4.30%, and seems to sell for 43 times earnings. I would need to put the company on my list for further research, although I have a hunch that the high P/E is because of its interest in Williams Partners (WPZ).

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 3.50% to 44 cents/share. This marked the eleventh consecutive annual dividend increase for this dividend achiever. Over the past decade, Laclede has managed to boost distributions by only 2.20%/year. The stock yields 3.75% and trades at 17.90 times earnings. Given the metrics out there, I would say this stock is probably a decent hold, although future dividend hikes would likely be limited to compensate for inflation.

To summarize, by focusing on the weekly list of companies that increase dividends, one would be able to monitor their holdings and also uncover opportunities that their regular screens might have overlooked. I am definitely interested to learn how Lancaster Colony has managed to raise dividends for over half a century, and whether it can continue this streak. I am also going to research more on Williams Companies, given the high yield and high expected dividend growth.

Full Disclosure: Lon g BF-B

Relevant Articles:

Check the Complete Article Archive
Dividend Achievers Offer Income Growth and Capital Appreciation Potential
Dividend Champions - The Best List for Dividend Investors
What is Dividend Growth Investing?
Dividend Investing – Science versus Intuition

3 comments:

  1. Hi DG Investor,

    I've read your Blog for quite sometime now and enjoy it very much. I am not an active investor but recently I started to study more due to the current market prices, specially the high dividend yield companies.

    One question: Do you consider in your analysis the number of years that an annual dividend will return the total amount of the principal invested, based on the price your purchased the stock?

    In my opinion, the benefit of owning dividend stocks (when they have regular earning & dividend growth) is if you can have a faster return of capital invested, together with market appreciation.

    What do you think?

    Thanks for sharing all the good stuff in your Blog,

    Cheers,
    D.T.

    ReplyDelete
  2. Hi DT,

    Thanks for reading. Before I get to researching a company, I run a screen through a list like the dividend champions for example.

    Then, in the evaluation of a company, I just try to look for the ones I think are attractively priced, and can grow earnings in order to grow dividends over time. My only goal is growing dividends out of rising earnings.

    As long as the earnings power is there and it is growing, I am good to go. The rest would take care of itself.

    I do not do complicated discounted cash flow analyses, because you fall into the trap of getting a precise number, but it is based on imprecise inputs.

    You can check this article out:

    http://www.dividendgrowthinvestor.com/2013/09/how-to-read-my-stock-analysis-reports.html

    Best Regards,

    DGI

    ReplyDelete
  3. Hi DGI,

    Thanks for the explanation.

    What you do is in line with I am trying to do and therefore I can learn a lot from you and your blog.

    I do not want to do any complicated discounted cash flow analyses either. I also believe in the GIGO (Garbage In Garbage Out).

    Instead I just try to do a simple calculation, such as:

    'Dividend$' divided by 'DesiredYield'
    For example: is closed $40.37. Estimated dividend from Earnings consensus is $1.3440 annual dividend. To return the price paid in dividends without reinvestment it out take aprox. 30 years of dividend payments ($40.37 divided by 1.3440). The 30Yr treasury is around 3.80%, so:

    $1.3440 / 0.038 = $35.37

    $35.37 (or below) is what I would consider attractive to pay for the stock to repay the investment in 30years or less time.

    I do not consider dividend reinvestment to determine the fair price, because reinvestment would use different market price at the time of reinvest purchase, even tough there would be a compound effect in the long term.

    I also will try to monitor the consistency of earnings growth, dividend growth and payout% growth. But I believe that the discipline has more than an important role in the process of dividend based investing.

    I will read the suggested article, thanks.

    Thanks again for your attention and time,

    Cheers,

    D.T.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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