Monday, February 6, 2017

Eight Dividend Stocks Rewarding Shareholders With A Raise

Every week, I review the list of dividend increases as part of my monitoring process. I usually focus on companies I already own. However, I also focus on companies that have raised dividends for at least a decade, in order to observe their performance from the grounds up. Over the past week, there were several companies that raised dividends. In the case of Diageo, I missed this company during my review last week, which is why I wanted to include it here. I have highlighted the ones that have managed to reward shareholders with a raise for at least ten years in a row. The companies include:

Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide It offers scotch whiskey, gin, vodka, rum, beer and spirits, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cacha├ža, and brandy, as well as adult beverages and ready to drink products. The UK based company raised its interim dividend by 4.90% to 23.70 pence/share. This international dividend company has increased dividends for 19 years in a row. (The UK currency is the British pound, and each pound is divided into 100 pence). Dividends on the ordinary shares are normally paid twice a year: an interim dividend in April and a final dividend in October. The approximate split between the two payments is 40:60. This would translate into an increase in the October payment to 38.40 pence/share, for a total annual dividend of 62.10 pence share.

Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended 30 June 2016 dividend cover was 1.5 times. It is expected that dividend increases will be maintained at roughly a mid-single digit rate until cover is back in range.

Over the past decade, earnings per share rose from 55 pence to 89 pence. The company is expected to earn 105 pence per share in 2017. This translates into a P/E ratio of 21 for Diageo at the current price of 2213 pence/share. The stock would be attractively valued on dips below 21 pounds per share.

For reference, each depositary share of Diageo traded on the New York Stock Exchange is equivalent to 4 ordinary shares traded on the London Stock Exchange. At the current rate of 80 pence per dollar, I would view Diageo as a decent value on dips below $105/share. The annual dividend in US dollars comes out to $3.10/share. Check my analysis of Diageo for more information about the company.

Compass Minerals International, Inc. (CMP) produces and markets salt, sulfate of potash specialty fertilizer, plant micronutrients, and magnesium chloride primarily in North America and the United Kingdom. The company raised its quarterly dividend by 3.60% to 72 cents/share. This was the 14th consecutive year of dividend increases for Compass Minerals. This dividend contender has managed to boost its payout at a rate of 8.60%/year over the past decade. Earnings per share rose from $1.69 to $4.69 over the past decade. The company is expected to earn $2.96/share over the next year. Currently, the stock is overvalued at 27.70 times forward earnings and yields 3.50%. I would give the company a pass at this time.

Eversource Energy (ES) is a public utility holding company, engages in the energy delivery business. The company operates in three segments: Electric Distribution, Electric Transmission, and Natural Gas Distribution. The company raised its quarterly dividend by 6.70% to 47.50 cents/share. This was the 19th consecutive year of dividend increases for Eversource Energy. This dividend contender has managed to boost its payout at a rate of 9.40%/year over the past decade. Earnings per share rose from $0.82 to $2.76 over the past decade. The company is expected to earn $2.97/share over the next year. Currently, the stock is fairly valued at 18.80 times forward earnings and yields 3.40%.I would add the company on my list for further research.

WGL Holdings, Inc. (WGL) sells and delivers natural gas; and provides energy-related products and services. The company operates through four segments: Regulated Utility, Retail Energy-Marketing, Commercial Energy Systems, and Midstream Energy Services. The company raised its quarterly dividend by 4.60% to 51 cents/share. This was the 41st consecutive year of dividend increases for WGL Holdings. This dividend champion has managed to boost its payout at a rate of 3.70%/year over the past decade. Earnings per share rose from $2.19 to $3.31 over the past decade. The company is expected to earn $3.37/share over the next year. Currently, the stock is overvalued at 24.40 times forward earnings and yields 2.50%. I would give the company a pass at this time.

PPL Corporation (PPL) is a utility company that delivers electricity and natural gas in the United States and the United Kingdom. The company raised its quarterly dividend by 3.90% to 39.50 cents/share. This was the 16st consecutive year of dividend increases for PPL Corporation. This dividend contender has managed to boost its payout at a rate of 4%/year over the past decade. Earnings per share rose from $2.63 to $2.79 over the past decade. The company is expected to earn $2.16/share over the next year. Currently, the stock is attractively valued at 16.40 times forward earnings and yields 4.40%. Given the lack of earnings growth over the past decade however, I will have to give the company a pass. I do not want dividend growth that is only possible by expanding the dividend payout ratio.

Meredith Corporation (MDP) operates as a diversified media company that focuses primarily on the home and family marketplace in the United States. It operates in two segments, Local Media and National Media. The company raised its quarterly dividend by 5.10% to 52 cents/share. This was the 25th consecutive year of dividend increases for Meredith Corporation. This dividend champion has managed to boost its payout at a rate of 12%/year over the past decade. Earnings per share rose from $3.44 to an estimated $3.75/share over the next year. Currently, the stock is attractively valued at 16.50 times forward earnings and yields 3.40%. Given the lack of earnings growth over the past decade however, I may have to give the company a pass.

Principal Financial Group, Inc. (PFG) provides retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. It operates through Retirement and Income Solutions, Principal Global Investors, Principal International, and U.S. Insurance Solutions segments. The company raised its quarterly dividend by 4.70% to 45 cents/share. This was the 10th consecutive year of dividend increases for Principal Financial Group. This dividend contender has managed to boost its payout at a rate of 7.20%/year over the past decade. Earnings per share rose from $3.01 to $4.50/share over the past decade The company is expected to earn $4.85/share during the coming year. Currently, the stock is attractively valued at 12.30 times forward earnings and yields 3.00%. I would put it on my list for further research

Cincinnati Financial Corporation (CINF) engages in the property casualty insurance business in the United States. It operates through five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. The company raised its quarterly dividend by 4.20% to 50 cents/share. This was the 58th consecutive year of dividend increases for Cincinnati Financial Corporation. This dividend king has managed to boost its payout at a rate of 3.80%/year over the past decade. Earnings per share declined from $5.30 to $3.83/share over the past decade The company is expected to earn $2.97/share during the coming year. Currently, the stock is overvalued at 24 times forward earnings and offers a current yield of 2.80%. Given the lack of earnings growth, and high valuation, I think that the stock is not a good value at the moment. I have been on record for selling Cincinnati Financial in early 2013 to buy the shares of the top 5 Canadian Banks. This is a good example of my assertion that selling a stock, and replacing it with something else is usually a mistake, despite the "reasons" one may have at the time.

Full Disclosure: Long DEO

Relevant Articles:

How to read my weekly dividend increase reports
Dividend Kings List for 2017
Spring Cleaning My Dividend Portfolio
Dividend Champions - The Best List for Dividend Investors
The ten year dividend growth requirement

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