Monday, December 23, 2013

Seven dividend companies bringing holiday joy to shareholders

The goal of every dividend investor is to generate a rising stream of sustainable dividend income. The growth in dividends protects the purchasing power of the income, and further turbochargers the compounding process in the accumulation phase. Not all dividend increases are created equal however, as they vary depending on size and sustainability. It is important to focus on growing income, but it is also important to focus on those companies that can sustainably pay distributions out of their growing earnings. Without growth in earnings, future dividend growth would eventually hit a ceiling. In addition, dividend investors should also refuse to purchase the rights to the future stream of dividends at any price.

If the investor manages to purchase quality dividend growth companies at fair prices after analyzing them individually, and puts them in a diversified income portfolio that is monitored regularly, they would greatly increase their odds of achieving their goals. Dividend stocks would therefore be the gift that keeps on giving for this investor, showering him with cash for years to come.

Over the past week, several dividend payers approved higher distributions for shareholders:

AT&T Inc. (T) provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. The company raised dividends by 2.20% to 46 cents/share. This marked the 30th consecutive dividend increase for this dividend champion. Over the past decade, AT&T has raised dividends by 5.20%/year. Currently the stock trades at 13.90 times expected 2013 earnings and yields 5.40%. Given the deceleration of the dividend growth rate, and the increasing competition in the telecom markets, I am going to stay away from this one. This is not different than my stance on the company for the past five years. Check my analysis of AT&T.

Archer-Daniels-Midland Company (ADM) manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients; and processes oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company raised dividends by 26.30% to 24 cents/share. This marked the 39th consecutive dividend increase for this dividend champion. Over the past decade, Archer-Daniels-Midland has raised dividends by 9.10%/year. Currently the stock trades at 19.40 times earnings and yields 2.30%. I like the company, and would like to add to my position on dips below $38.50/share. Check my analysis of ADM.

3M Company (MMM) operates as a diversified technology company worldwide. The company raised dividends by 34.60% to 85.50 cents/share. This marked the 56th consecutive dividend increase for this dividend king. Over the past decade, 3M has raised dividends by 6.60%/year. Currently the stock trades at 20 times estimated 2013 earnings and yields 2.50%. It is nice to see another company that becomes a better dividend value in this otherwise overheated environment. Check my analysis of 3M.

Realty Income Corporation (O) is a publicly traded real estate investment trust that invests in commercial real estate markets of the United States. The company raised dividends to 18.217 cents/share. This dividend achiever has raised distributions since 1994. Over the past decade, the REIT has raised dividends by 4.20%/year. Currently the stock trades at 15.70 times FFO and yields 5.50%. The increase in interest rates in a few years might lead to further declines in stock prices for REITs. As a long-term investor, I see some growth in distributions from Realty Income in the future fueled by acquisitions and rent increases. This makes this REIT a buy in my book. I recently sold some January 2015 at-the-money puts on the stock. Check my analysis of Realty Income.

CVS Caremark Corporation (CVS), together with its subsidiaries, provides integrated pharmacy health care services in the United States. The company raised dividends by 22.20% to 27.50 cents/share. This marked the 11th consecutive dividend increase for this dividend achiever. Over the past decade, CVS has raised dividends by 18.80%/year. Currently the stock trades at 17.70 times estimated 2013 earnings and yields 1.60%. While the stock is below my minimum entry yield requirement, I would continue monitoring future developments at CVS.

General Electric Company (GE) operates as an infrastructure and financial services company worldwide.
The company raised dividends by 15.80% to 22 cents/share. This marked the 4th consecutive annual dividend increase for General Electric. The new dividend is still below the levels of 31 cents/share for shareholders, that was last seen in early 2009. Currently the stock trades at 16.70 times estimated 2013 earnings and yields 3.30%. I plan on reviewing GE in more detail in the coming weeks, in order to determine if it is worthy of my investment dollars.

Urstadt Biddle Properties, Inc. (UBA), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of commercial real estate properties in the United States.
The company raised dividends by 1% to 25.25 cents/share. This marked the 20th consecutive dividend increase for this dividend achiever. Over the past decade, Urstadt Biddle Properties has raised dividends by 2%/year. Currently the REIT trades at 20 times FFO and yields 5.50%. I am generally not a fan of dividend growth companies that raise dividends simply to maintain a streak, but the nominal raises are below the rate of inflation. Despite the high current yield, I do not find the company worthy of further research.

Full Disclosure: Long O, MMM and ADM

Relevant Articles:

Check the Complete Article Archive
The Dividend Kings List Keeps Expanding
My Dividend Retirement Plan
Dividend Investing Goals for 2013
Margin of Safety in Dividends

6 comments:

  1. Thank you for the great article as usual. However, I do have a nagging question that seems to always comes up when one talks about dividend investing.
    It is generally known that growth and income investing implies "buy and hold" philosophy. But it is very hard to practice this philosophy as watch the market drop 10 to 20 percent and wait for it to come back. Historically, how does "buy and Hold" compare to say timing the market??
    Thanks in advance.

    Tony
    aattard@msn.com

    ReplyDelete
  2. Historically, there are virtually no long-term successful market timing investors. Warren Buffett is definitely a buy and hold investor, to the point of buying some companies outright.

    Take the benefits of both. Choose entry purchase prices/yields carefully and conservatively, and if you can't find what you feel is a good value stop buying. You might constantly be able to find good values (REITS and gold could be argued as "good" values right now) and just keep buying.

    During a market crash, live like a hermit and dump every penny you can find into buying more stocks when you start seeing fantastic values everywhere. Take the benefit of the "buy low" market timing strategy whenever you can with every penny even as it keeps dropping.

    ReplyDelete
  3. Anon, great answer to ACSA's question.

    I would say that based on observations of investor behaviors and investing activity, study after study have shown that for the average investor, market timing leads to poor poor results.

    I define market timing as the attempt to buy and sell shares, rather than wait for the price and hold on for years and decades.

    In other words, don't do market timing, as it does much worse than buy and hold. Only a select few investors can do it somewhat consistently, but that would be less than 5-10% i would presume..

    ReplyDelete
  4. Thanks a bunch guys for the reply to my comment. I appreciate and value your comments.
    Have a Merry Christmas and a happy new year.

    ACSA

    ReplyDelete
  5. How will rising rates affect dividend investing and dividend growth investing? I keep hearing that rising rates will hurt dividend-focused stocks, but it seems to me that although rising rates eventually will make fixed income investments more compelling, most investors still would be well off getting dividends and reinvesting them in quality businesses, even if rates are increasing.

    ReplyDelete
  6. Last Anon,

    Check this out:

    http://www.dividendgrowthinvestor.com/2013/06/rising-interest-rates-affect-all.html

    DGI

    ReplyDelete

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