Four Dividend Growth Stocks Increasing Dividends Last Week

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing companies, and also potentially identify companies for further research.

In my reviews, I focus on companies that have managed to increase dividends for at least ten consecutive years. I also drill down on understanding whether dividend growth was supported by rising earnings per share. In addition, I want to compare the most recent dividend increase to the historical average.

Last but not least, I want to look at valuation. Valuation is part art, part science. It takes into consideration the current P/E, and dividend yield, along with growth in earnings and dividends, and then making an extrapolation about the future.

During the past week, there were four companies that announced increases in their quarterly dividends, which also have a ten year minimum streak of consistent annual dividend increases. The companies include:

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. It operates in four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.

Enterprise Products Partners raised its quarterly distribution to $0.545/unit. This is a 3.80% increase over the distribution paid during the same time last year. This dividend champion has increased annual distributions to partners since 1998.

Over the past decade, EPD has managed to boost distributions at an annualized rate of 3.73%.

The partnership yields 6.80%. 

Marsh & McLennan Companies, Inc. (MMC) is a professional services company, which provides advisory services and insurance solutions to clients in the areas of risk, strategy, and people worldwide. It operates through Risk and Insurance Services, and Consulting segments. 

The company raised quarterly dividends by 10.40% to $0.90/share. This is the 16th year of consecutive annual dividend increases for this dividend achiever. The company has managed to boost dividends at an annualized rate of 11.28% over the past decade.

Between 2015 and 2024, earnings per share increased from $3.01 to $8.25.

The company is expected to earn $9.58/share in 2025.

The stock sells for 22.40 times forward earnings and yields 1.70%.

Ryder System, Inc. (R) operates as a logistics and transportation company worldwide. It operates through three segments: Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS). 

Ryder raised its quarterly dividends by 12.30% to $0.91/share. This is the 21st consecutive year of dividend increases for this dividend achiever. The company has managed to boost dividends at an annualized rate of 8.15% over the past decade.

Between 2015 and 2024, earnings per share increased from $5.75 to $11.28.

The company is expected to earn $12.88/share in 2025.

The stock sells for 13.70 times forward earnings and yields 1.84%.

Unum Group (UNM) provides financial protection benefit solutions in the United States, the United Kingdom, and Poland. It operates through Unum US, Unum International, Colonial Life, and Closed Block segment.

The company raised quarterly dividends by 9.5% to $0.46/share. This is the 17th consecutive annual dividend increase for this dividend achiever.  The company has managed to boost dividends at an annualized rate of 9.79% over the past decade.

Between 2015 and 2024, earnings per share increased from $3.51 to $9.49.

The company is expected to earn $8.90/share in 2025.

The stock sells for 9 times forward earnings and yields 2.30%.

Relevant Articles:

- Nine Dividend Achiever Banks Raising Dividends After Passing the Fed's Stress Tests

- Three Dividend Growth Companies Raising Dividends Last Week

- Two Dividend Achievers Increasing Dividends Last Week

- Nine Companies Raising Dividends Last Week

Consumer Staples Have Some Value Left

There is some news around the consumer staples, which is a popular bread and butter sector for many dividend growth investors. It looks like the sector has some value, that could be unlocked by private buyers or spin-offs.

Last week, Ferrero Group announced that it will acquire WK Kellogg (KLG) for $23/share.

Back in 2023, Kellogg's split into WK Kellogg (KLG) and Kellanova (K). Kellanova itself is in the process of being acquired by Mars Inc

Today, Kraft Heinz is rumored to be planning to split off its grocery business, from its sauce and spreads business. In effect splitting into a Kraft and a Heinz. That could unlock some value, and potentially get someone else to bid up for those separate companies.

Looks like there is some value left in consumer staple brands after all. Perhaps those deals are a sign that public market valuations are lower than what the intrinsic values to a private buyer would be.

For those who like to play the relative performance game, the consumer staples sector (XLP) has lagged the averages in the past 15 years.

Of course, it really did much better in the lost decade of the 2000s and then some.

Those companies have managed to weather many storms, and succeed in a slow and steady fashion.

It's fascinating to look under the hood on the staples etf. 

The two largest companies, Costco (COST) and Walmart (WMT),  are not what many of us would consider to be a consumer staple. 

These sector classifications are indeed something, arent' they?

There is some untapped value there I think, in the traditional consumer staples space however. These companies can weather storms well, but also deliver returns when things are good too. 

There are some risks to some companies in the sector, though these companies have also been known to manage a ton of risks and obstacles over the decades, and overcome them. 

These strong brands have some pricing power left too, along with some loyal customer following. Yes, consumers are squeezed, and yes there is always the risk of generics and probably other risks as well     ( Ozempic for some). But these companies have also managed to overcome those risks in the past, so perhaps they'd pull another trick from up their sleeves.

There's probably a reason why there are so many consumer staples in the list of the best performing companies over the past half a century or so..

Even an average return can compound to a lot of wealth if left uninterrupted for a long time..

That being said, one should always use the type of logical evaluation of each company, before investing in my opinion. On my end this means requiring a long history of dividend increases, that is supported by growth in earnings per share. I also want an adequate dividend payout ratio as well as a good valuation.  This provides some margin of safety for the diversified dividend growth investor.

Warren Buffett's investment in Coca-Cola

Warren Buffett's investment in Coca-Cola (KO) is really fascinating.

He started buying it in 1988 after the 1987 Stock Market crash.

Buffett built his position in Coca-Cola by the end of 1994, and his average cost is $3.25/share. 

The stock sold for a P/E of 12 - 15 in 1988.

However, it grew EPS from $0.153 in 1987 to $0.495 in 1994 (adj for splits). Then it grew again to $0.82/share in 1997, before hitting a short-term snag.

You can view the trends in earnings per share, share price and dividends between 1984 and 2003

The 1990s were are great time for US multi-national branded companies, as a lot of new markets opened for them. Demand increased as well, while they also maintained pricing power too.

In the meantime, the company's "quality" was re-descovered and investors bid it up to much higher P/E ratios.

In hindsight, one could argue that Warren Buffett should have sold out of Coca-Cola in 1997 - 1998, when it sold at a P/E above 30. 

The problem with this thinking is that it wreaks of hindsight bias. It's easy to see the top, and apply "criteria" after the fact when you have perfect hindsight.

The reality of making such rash decisions in real-time is much more complicated. For example, Coca-Cola stock was equally overvalued in 1991, selling above 30 times earnings as well. If you had sold back then at a high price of $10.22/share, you would have missed out on all the upside from 1991 to 1998, when it reached over $44/share. And not including dividends even. Valuation based timing only works perfectly with the benefit of hindsight, but rarely in real time.

Of course, selling would have also triggered steep corporate taxes of 35% or so. So if they sold at close to the all-time-highs at $43.25/share in 1998, they'd have realized a gain of $40/share. The IRS would have taken away $14/share in taxes. Of course, it is impossible to sell at the very top. It is also impossible to just sell 400 Million shares just like that, which represents a very high percentage ownership of the float. This sale by Buffett would have depressed the share price, so they would have had to sell at a lower price, even if they knew where the top and bottom would be (which is impossible) on top of losing a steep amount of value in taxes on capital gains.

As a corporation, Berkshire Hathaway does not get a preferential tax rate on realized capital gains. They do get a preferential tax rate on dividends, due to the dividends received deduction. 

Because of those taxes, it seems like selling Coca-Cola stock in 1997 - 1998 and investing in a diversified basket of equity investments would have been a moot point (due to the 35% tax on gains, the fact that Buffett's sales would have depressed the stock price and the fact that he would have missed out on all those dividends over the decades).

The best part of course is that Buffett never reinvested those Coca-Cola dividends that were received over the years. I calculate that since 1994, Berkshire has received over $29/share in dividends for Coca-Cola.

Even better is the fact that dividends are taxed at preferential rates for Berkshire Hathaway, because of the dividend received deduction.  Capital gains are taxed at worse tax rates for Berkshire Hathaway than dividends, because Berkshire is a corporation.

That dividend money has been invested at high rates of returns that Buffett has achieved interally into others stocks and businesses. Which means that market timing was not really necessary.

Today, Coca-Cola's growth has slowed down, as the company is expected to earn $2.97/share. But it's not out yet.

The company pays an annual dividend of $2.04/share, which represents an yield on cost of 62.76% for Berkshire. This means that every 18 months, Buffett's holding company gets its original cost back in dividends alone. Dividends are a return on investment and a return of investment.

Plus, at $69.48/share, Buffett is sitting at a nice unrealized gain of $666.23 per share (reminder his cost is $3.25/share)

The nice thing is that since 1994, he has received $29.27 in dividends per each share he owns.

Today, this investment is worth almost $28 Billion and generates $816 million in annual dividends.

That dividend money has been deployed by Buffett into the best opportunities he could find, at the ROI he requires.

Returns of S&P 500 Index Stocks by Dividend Policy

I am a big fan of Dividend Growth Investing. I like the mental model of Dividend Growth Investing, where a rising stream of annual dividend increases that spans over many years is a sign of a quality business. Characteristics of quality businesses include generating excess cashflows, high returns on investment, wide moats/competitive advantages and dominant market position and brand power. It also means have a business model that is not too cyclical either. Perhaps some pricing power as well.

Only a good business can afford to grow and also throw off a rising torrent of cash annually for many decades. If you generate a high return on invested capital, you know that there are only so many opportunitities in the physical world to deploy at that high rate of return anyways. Hence, a quality company with a 20% return on capital can afford to reinvest half of profits to grow EPS at 10%/year, while a mediocre company with a return on capital of 8% would have to reinvest everything to potentially grow EPS at 8%/year.

That ROI provides a good yardstick, and focuses management's attention only on those high value projects. The rest is sent back to shareholders.

In other words, a consistent history of dividend increases is the end result of having a quality business that has grown the bottom line for a long time. 

If you look at the statistics of many of America's great businesses, you see rising earnings per share over time, which fuels rising dividends per share and rising share prices over time as well. The issue of course is that share prices tend to be more volatile than the dividends and earnings.

Now, there are many good businesses in the world. There are also many businesses in different stages of their lifecycle.

For example, a start-up is unlikely to be paying dividends. However, most start-ups are lottery tickets, because the likelihood they will survive is very very low. 

Companies in their decline/the end of their lifecycle also cannot pay dividends, because they are struggling for their survival.

The middle point, where a company is established and thrives is where you get to see dividend growth appear.

Most quality companies cannot reinvest everything they earn at a high rate of return. Hence why they send it back to shareholders in the form of dividends. Very few quality and established companies can afford to generate a high durable return on investment and reinvest everything in their business at a high rate of return. Warren Buffett has discussed this in his discussion of his ideal business

This was a rather long introduction. I wanted to provide some nuance about Dividend Growth Investing. In my opinion, it is a worthwhile strategy as there are a lot of quality businesses that are dividend growth companies. Studying the lists of dividend achievers, dividend champions, dividend aristocrats and dividend kings can help identify and select good quality investments to hold for the long run.

That being said, not every company that is a dividend growth stock is a good investment. 

There are various studies about Dividend Growth Investing, the most popular being the Ned David Research one. It shows that companies that grew or initiated a dividend have experienced the highest returns relative to other stocks since 1973.

This chart shows you that dividend growers & initiators had a better performance than dividend cutters & eliminators and dividend non-payers. They also seem to be showing that the equal weighted S&P500 index did worse than dividend growers and initiators. In addition, dividend growers had a low standard deviation.

This outperformance looks very convincing, when you look at it in a chart format.

So case closed, right? You are sold on Dividend Growth Investing.

The problem for me is that I want to trust this data, but I have to verify it.

I simply took a look at historical S&P 500 total returns data since 1973. Source: Adamodar

According to this data source, a $100 investment in S&P 500 index at the end of 1972, with dividends reinvested, would have turned to $20,639.81. 

This is a logaritm chart of those total returns off a $100 investment at the end of 1972:

This shows me that S&P 500 itself did better than the dividend growers and initiators. And the S&P 500 itself did much better than the S&P 500 in the Ned Davis Research Study.

Which to me raises more questions, rather than solves anything. 

Why is it that the performance of S&P 500 in Ned Davis Research so poor relative to the actual S&P 500. Perhaps it has something to do with the way they weight their portfolios. Perhaps it could be due to their data integrity. Again, these performance gaps raise questions about the Ned Davis Research Study and data. I do not believe we have an apples to apples comparison.

Also that being said, their equal weighted data on S&P 500 does not feel right. That's because from all the research papers I have ever read, equal weighted indices typically have tended to OUTPERFORM market weight indices. This is a second reason why I am questioning the data in Ned Davis Research Study on returns based on a dividend policy.

Perhaps, if they did a comparison based on a market cap weighted basis, it would be a better apples to apples comparison. That can clearly show investors how Dividend Growth companies have done per their dividend policy. 

But in reality, it would be really helpful to understand what methodology Ned Davis Research used on their studies of performance on companies per dividend policy. 

Perhaps this study is used as a marketing tool from mutual funds to sell you dividend growth funds. As investors however, we know that nobody else cares more about your money than you do. Hence why you need to trust, but verify. And while that Ned Davis Research Study does look convincing at first glance, it does not seem right, as it raises more questions than it answers.

The issues are that it uses a methodology that is not well explained.

The study's results do not link to the performance of S&P 500 index itself. Why are dividend growth stocks showing as outperforming, when in reality that index seems to have done worse than the actual returns of the S&P 500 index?

The study uses an odd performance for S&P 500 equal weighted index, which has done much worse than the actual performance of S&P 500. It looks as if they forgot to add dividends on the performance of their equal weight index. Which seems odd to me.

The conclusion for me is to learn to read reports and studies critically. They are mostly marketing materials, rather than anything else.

It's also important to keep learning, and gathering different data points in your toolbelt, so you can try to connect the dots and identify gaps.

Nine Dividend Achiever Banks Raising Dividends After Passing the Fed's Stress Tests

Several of the large banking institutions in the US passed the Stress Tests imposed by the Federal Reserve. As a result, they announced their intentions to raise dividends and boost buyback allocations.

I went through the list of increases from last week, and focused on the institutions that have a ten year track record of annual dividend increases:

I also added ten year charts showcasing the trends in share price, quarterly earnings and quarterly dividends.

In order to understand equity returns, you need to decompose them to their sources. 

Equity returns are a function of:

1. Dividend Yields

2. Earnings Per Share Growth

3. Change in valuation

In the long-run, the first two items (dividends and earnings per share) are the so called fundamental sources of returns. They drive the total return over periods longer than say a decade. The changes of valuation matter the least in the very long-run.

In the short-run however, for periods of five to ten years or less, valuation does matter a lot. This is why your returns would be much different if you bought a company at a starting yield of 4% versus a starting yield of 2%. That being said, rising earnings and dividends matter a lot too, because they provide the needed fuel behind great returns in the long-run. However, if you manage to acquire a good company at a discount, your potential returns will be higher.

Visualizing the interplay between dividend yields, earnings per share growth and the changes in valuation showcases where returns have come from perfectly well. It also provides the perspective to determine where we are today, and also to potentially provide some markers as to where a potential future buy point could be set at.

Bank of America (BAC) hiked its quarterly dividend by 8% to $0.28/share. This will be the 12th year of consecutive annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.70% over the past five years. 

The company has managed to grow earnings from $1.38/share in 2015 to $3.25/share in 2024.

The company is expected to earn $3.63/share in 2025.

The stock sells for 13.46 times forward earnings and a dividend yield of 2.13%.

Bank of New York Mellon (BK) increased its quarterly dividend by 12% to $0.53/share. This will be the 15th consecutive increase in the annual dividend for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.60% over the past five years. 

The company has managed to grow earnings from $2.72/share in 2015 to $5.84/share in 2024.

The company is expected to earn $6.80/share in 2025.

The stock sells for 13.60 times forward earnings and a dividend yield of 2.03%.

Bank OZK (OZK) increased its quarterly dividend to $0.44/share. While this is a 2.30% raise over the dividend paid in the previous quarterly, it is also a 10% increase over the dividend paid during the same time last year. Bank OZK tends to raise dividends every quarter. This dividend aristocrat has regularly increased dividends since 1997.  It has managed to grow dividends at an annualized rate of 10.90% over the past five years.

The company has managed to grow earnings from $2.10/share in 2015 to $6.16/share in 2024.

The company is expected to earn $6.10/share in 2025.

The stock sells for 8.36 times forward earnings and a dividend yield of 3.45%.

Goldman Sachs (GS) increased its quarterly dividend by 33% to $4/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. It has managed to grow dividends at an annualized rate of 22.60% over the past five years. 

The company has managed to grow earnings from $12.35/share in 2015 to $41.07/share in 2024.

The company is expected to earn $44.70/share in 2025.

The stock sells for 16.20 times forward earnings and a dividend yield of 1.67%.

JPMorgan Chase (JPM) increased its quarterly dividend by 7% to $1.50/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 6.90% over the past five years.

The company has managed to grow earnings from $6.05/share in 2015 to $19.79/share in 2024.

The company is expected to earn $18.48/share in 2025.

The stock sells for 16 times forward earnings and a dividend yield of 1.89%.

Morgan Stanley (MS) boosted its quarterly dividend by 8% to $1/share. This is the 12th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 22.30% over the past five years.

The company has managed to grow earnings from $2.97/share in 2015 to $8.05/share in 2024.

The company is expected to earn $8.68/share in 2025.

The stock sells for 16.60 times forward earnings and a dividend yield of 2.57%.

PNC Financial (PNC) raised its quarterly dividends by 6.30% to $1.70/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.40% over the past five years.

The company has managed to grow earnings from $7.52/share in 2015 to $13.77/share in 2024.

The company is expected to earn $15.13/share in 2025.

The stock sells for 13 times forward earnings and a dividend yield of 3.26%.

State Strett (STT) raised its quarterly dividend by 11% to $0.84/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 8% over the past five years.

The company has managed to grow earnings from $4.53/share in 2015 to $8.34/share in 2024.

The company is expected to earn $9.58/share in 2025.

The stock sells for 11.50 times forward earnings and a dividend yield of 2.76%.

U.S. Bancorp (USB) raised its quarterly dividend by 4% to $0.52/share. This is the 15th year of consecutive annual dividend increases over this dividend achiever. The company has managed to grow dividends at an annualized rate of 5.20% over the past five years.

The company has managed to grow earnings from $3.18/share in 2015 to $3.79/share in 2024.

The company is expected to earn $4.04/share in 2025.

The stock sells for 11.76 times forward earnings and a dividend yield of 4.17%.

Relevant Articles:

- Three Dividend Growth Companies Raising Dividends Last Week

- Seven Dividend Growth Companies Raising Dividends Last Week

- Two Dividend Achievers Increasing Dividends Last Week

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