As part of my monitoring process, I evaluate the list of dividend increases every week. This exercise helps me observe the rate of dividend growth for companies I own. It also helps me to familiarize myself with other dividend growth companies. I also believe that running through the list, and narrowing it down to a more manageable level using my screening criteria is helpful to readers for educational purposes. I find it helpful to run through the exercise of narrowing the list of companies that raised dividends in a given week, by focusing on those that have raised dividends for at least ten years in a row. I also find it helpful to then evaluate each company quickly, using my well-publicized entry criteria, and then zooming in further on the fundamental performance and valuation criteria in order to determine whether a stock is worth a further look today. This is the type of decision making that goes in my head while I review different companies.
Over the past week, there were several dividend companies with a track record that raised distributions. The companies include:
Digital Realty Trust, Inc. (DLR), is a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., which engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. This REIT raised its quarterly dividend by 5.70% to 93 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, the REIT has managed to boost annual dividends at a rate of 12.80%/year. This was supported by growth in FFO from $2.02/share in 2007 to $5.76/share in 2016. The REIT is expected to generate $6.01/share in FFO in 2017. Unfortunately, Digital Realty is a little pricey at 18 times forward FFO and yields 3.50%. Digital Realty may be a better value if it sold in the low $90s or below. If you want to buy it at a cheaper price, let's hope that another hedge fund manager launches a bear attack on the stock, like the one we had in 2013.
General Dynamics Corporation (GD) operates as an aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems. The company raised its quarterly dividend by 10.50% to 84 cent/share. This marked the 26th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost its annual dividend at a rate of 12.80%/year. This was supported by a rise in earnings per share from $5.10 in 2007 to $9.87/share in 2016. The company is estimated to earn $9.79/share in 2017. The stock is fairly valued at 19.40 times forward earnings and yields 1.80%.
Ross Stores, Inc. (ROST), operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company raised its quarterly dividend by 18.50% to 16 cents/share. This marked the 24th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company managed to boost its annual dividends at a rate of 24.60%/year. The company also managed to grow earnings from $0.48/share in 2008 to $2.83/share in 2017. Ross Stores is expected to earn $3.14/share in 2018. The stock is overvalued at 21.20 times forward earnings and yields 1%. I would be somewhat interested in the stock on dips below $62/share. Check my analysis of Ross Stores for more information.
Best Buy Co. (BBY), Inc. operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company raised its quarterly dividend by 21.40% to 34 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. In the past decade, the company has managed to raise its annual dividend at a rate of 12.10%/year. Earnings per share grew slightly from $3.12/share in 2008 to $3.74/share by 2017. The company is expected to earn $3.88/share in 2018. The stock is cheap at 11.90 times earnings and yields 3.20%. The stock is a cheap one in todays overheated market. The downside is that earnings per share have barely grown over the past decade, while revenues have not grown either. The retail space is incredibly competitive these days, as traditional retailers have to compete with other brick and mortar locations, as well as online retailers. I believe that having a retail and online presence is something that will help traditional retailers. Enterprising value investors may find the company interesting enough, provided they believe that the earnings power will not be eroded by the competition. Others, may find the company to be a value trap, which will be obsolete within a decade or less. Given the lack of significant profit growth over the past decade, and the increased competitive forces, I view the company as a hold.
McGrath RentCorp (MGRC) is a business to business rental company, rents and sells relocatable modular buildings, electronic test equipment, and liquid and solid containment tanks and boxes in the United States and internationally. It operates through four segments: Mobile Modular, TRS-RenTelco, Adler Tanks, and Enviroplex. The company raised its quarterly dividend by 2% to 26 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. Over the past decade, McGrath RentCorp has managed to raise dividends at a rate of 5.10%/year. The company failed to grow income over the past decade - it earned $1.67/share in 2007 followed by a $1.60/share in 2016. McGrath RentCorp is expected to earn $1.84/share in 2017. Currently, the stock is selling for 18.60 times earnings and yields 3%. Given the lack of earnings growth, I would give the stock a pass.
Silgan Holdings Inc. (SLGN), together with its subsidiaries, manufactures and sells rigid packaging for shelf-stable food and other consumer goods products worldwide. It operates through three segments: Metal Containers, Closures, and Plastic Containers. The company raised its quarterly dividend by 5.90% to 18 cents/share. Over the past decade, the company has managed to boost its annual dividends at a rate of 11%/year. This was supported by strong earnings growth. Earnings per share rose from $1.61/share in 2007 to $2.55/share by 2016. Currently, the stock is overvalued at 23.70 times earnings and yields 1.20%. It may be worth researching further, if it dipped below $51/share.
Torchmark Corporation (TMK), through its subsidiaries, provides various life and health insurance products, and annuities in the United States, Canada, and New Zealand. It operates through Life Insurance, Health Insurance, and Annuities segments. Torchmark raised its quarterly dividends by 7.10% to 15 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, Torchmark has managed to hike its annual distributions at a rate of 10%/year. The company grew profits from $2.44/share in 2007 to $4.41/share in 2016. Torchmark is expected to earn $4.69/share in 2017. The stock is attractively valued at 16.70 times forward earnings and yields 0.80%.
Waste Management, Inc. (WM), through its subsidiaries, provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America. The company raised its quarterly dividend by 3.70% to 42.50 cents/share. This marked the 15th consecutive annual dividend increase for Waste Management. Over the past decade, this dividend achiever has managed to boost dividends at a rate of 6.40%/year. The company grew profits from $2.23/share in 2007 to $2.65/share in 2016. Waste Management is expected to earn $3.17/share in 2017. The stock is overvalued at 23 times forward earnings and yields 2.30%. Given the low growth in earnings, and the high valuation I see the stock as a hold.
Full Disclosure: Long ROST, DLR, GD
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Champions - The Best List for Dividend Investors
- The ten year dividend growth requirement
- How to read my weekly dividend increase reports
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