Increasing the dividend is a sign of confidence in the business.
I study dividend increases every week, and focus my reviews on the companies that have managed to raise dividends for at least a decade. You can view a list of the nine companies that raised dividends last week here:
This of course is just one step of my process. I like to regularly screen the dividend growth investment population for quality companies selling at a discount. I review the list of dividend increases as another way to look at the population, and monitor existing holdings. It's also a step that could potentially help identify good companies early.
When a company has raised dividends, it simply ends up on my desk for a quick review, before I decide what to do with it. My review could either determine that fundamentals are not attractive, which means I discard it. If my review determines that fundamentals are attractive, and could potentially continue delivering on them, I would review valuation. If valuation is too high, I would put it on a list of candidates that should be considered if their price declines to a required minimum amount. If valuation is adequate, I would compare this investment to others that fit my entry criteria, and determine if I should buy it or something else.
Another factor in my consideration includes whether I have ownership and how concentrated that ownership is in my portfolio.
As you can see, there are lots of different trade-offs involved.
But at a minimum, I look fundmanetally for:
1. A long history of annual dividend increases
2. Earnings per share growth over the past decade
3. Adequate dividend payout ratio
4. Dividend increases above inflation, including most recent dividend raise
5. Attractive valuation. Note that valuation is part art, part science, as it considers trade-offs between dividend yield and dividend growth, other investment opportunities, interest rates, moats, defensibility of earnings, and how cyclical the business model is.
