Monday, December 17, 2018

Thirteen Companies Boosting Distributions For Long-Term Shareholders

As part of my monitoring process I look at the list of dividend increases every week. I use this exercise to monitor existing portfolio holdings and to identify companies to add for further research.

I follow a few guidelines when I review dividend paying stocks. Namely I look for a long streak of annual dividend increases. I used 9 years in this review in order to reduce the list of companies to a manageable level. I usually use ten years, but today I wanted to see what is upcoming.

I focus on the rate of latest dividend increase, relative to the five or ten year average. Recent dividend increases tell me a lot about management sentiment towards the near term business prospects of the company. An increase that is well below the rate of dividend growth indicates caution, while an increase that is close to or higher than the average indicates optimism.

We can’t look at dividend growth rates in isolation of course. Management teams could be wrong about their assessment of business conditions. This is why I like to look at the trends in earnings per share, in order to determine if there is enough fuel for future dividend increases. I want dividend growth which is based on solid growth in earnings per share. I do not want a high double digit dividend growth, which is created by expanding the dividend payout ratio. I also look skeptically at companies which achieve a streak of dividend increases through token raises to the distributions.

I also like to review valuation, because even the best company in the world is not worth overpaying for. I look for a P/E below 20 for companies I am interested in, as a good starting yardstick. However, I also take into consideration the growth, dividend safety and dividend yields. As you can see the process of evaluating dividend growth companies is nuanced, and not mechanical.

The companies that raised dividends last week, which we are valuating today include:

Realty Income (O), The Monthly Dividend Company is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 5,600 real estate properties owned under long-term lease agreements with regional and national commercial tenants.

Last week, the REIT raised its monthly dividends to 22.10 cents/share. This represents a 4%  increase over the dividend paid during the same time last year. If Realty Income continues raising dividends in 2019, it will join the dividend champions list. This is what management had to say about it in their announcement:

"We remain committed to our company's mission of paying dependable monthly dividends to our shareholders that increase over time," said Sumit Roy, President and Chief Executive Officer of Realty Income. "Our Board of Directors has once again determined that we are able to increase the amount of the monthly dividend to our shareholders, marking the 99th increase since our company's public listing in 1994. With the payment of the January dividend, we will have made 582 consecutive monthly dividend payments throughout our 49-year operating history."

The ten year dividend growth is 4.40%/year. This was supported by growth in FFO/share from $1.89 in 2007 to $3.06 in 2017.  

The REIT yields 4% and is selling at 21.70 times FFO. I would prefer Realty Income below $53/share, as I find it to be a little overvalued today. Check my analysis of Realty Income for more information about the REIT.

AT&T Inc. (T) provides communications and digital entertainment services. The company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility, and International.

The company raised its quarterly dividend by 2% to 51 cents/share, which marked the 35th consecutive annual dividend increase. I liked the following from the press release:

“Our healthy cash flows and strong outlook for 2019 give us the confidence to raise our dividend for the 35th consecutive year. The dividend is an important way we provide value to our shareholders, and I’m proud that we are able to continue our history of annual increases,” said Randall Stephenson, chairman and CEO, AT&T Inc.

Over the past decade, this dividend champion has raised dividends by 3.30%/year.

The company’s earnings went from $1.94/share in 2007 to $1.57/share in 2017 (adjusted for a 3.16/share impact of the new tax law signed into effect in 2017). AT&T expects to earn $3.50/share in 2018.

I am not a big fan of the US telecom industry, and AT&T, given the high level of debt, increased levels of competition, the high need for high capex to maintain network coverage, and the constant need to upgrade the networks for the newer standards that come out. If Sprint and T-Mobile are allowed to merge, we may see a more cutthroat environment that could reduce profits for everyone. I also am taking a wait and see approach, in order to see how the acquisitions of DirectTV and Time Warner work out. I do like Verizon, but not at this price. That being said, at 8.60 times forward earnings and a 6.75% dividend yield, the stock looks like a bargain. If AT&T just maintains its dividend, investors can generate almost 7% in annual total returns. It seems as if the market is probably telling us that this overly high dividend is risky.

Franklin Resources, Inc. [BEN] is a global investment management organization operating as Franklin Templeton Investments. The company announced a 13% increase in its quarterly dividend to 26 cents/share. The Company has raised its dividend every year since 1981. In the past year it has managed to grow dividends at an annual rate of 14.90%/year. This statistic doesn’t include the fact that Franklin Resources tends to distribute large special dividends from time to time.
The company managed to grow earnings from $2.22/share in 2008 to $3.19/share in 2018. The 2018 figures have been adjusted by a $1.80 per diluted share one-time adjustment resulting from the Tax Act. Unfortunately, earnings per share have been in a decline since 2015, as assets under management have declined. As a result, I am taking a pass at Franklin Resources. Check my analysis of Franklin Resources for more information about the company. 

Amgen Inc. (AMGN) discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of oncology/hematology, cardiovascular, inflammation, bone health, nephrology, and neuroscience.

The company raised its quarterly dividend by 9.80% to $1.45/share. This marked the 9th consecutive annual dividend increase for Amgen. The company has a pretty strong 5 year dividend growth rate at 26.1%/year over the past 5 years, which is typical for companies in the first phase of dividend growth. Between 2008 and 2017, the company grew earnings per share from $3.77 to $11.03 (this figure is adjusted for one-time effects of the new tax reform signed at the end of 2017 ). Amgen expects to earn between $12.23 - $12.55/share in 2018.

The stock looks attractively valued at 15.70 times forward earnings and yields 3%. I would add the stock to my list for further research.

Erie Indemnity Company (ERIE) operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. The company provides sales, underwriting, and policy issuance services for the policyholders on behalf of the Erie Insurance Exchange.

The company raised its quarterly dividend by 7.10% to 90 cents/share. This marked the 29th consecutive annual dividend increase for this dividend champion. Over the past decade, this company has been able to raise dividends by 6.90%/year. Between 2008 and 2017, the company grew earnings per share from $1.19 to $3.76. Erie is expected to earn $4.91/share in 2018.

The stock is overvalued at 26.80 times forward earnings and yields 2.70%. It may be worth a second look if it dips below $75/share.

Graco Inc. (GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide.

The company raised its quarterly dividend by 20.80% to 16 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. Over the past decade, this company has been able to raise dividends by 8.10%/year. Graco has managed to boost earnings per share from $0.66 in 2008 to $1.45 in 2017. Graco is expected to earn $1.88/share in 2018.

The stock looks overvalued at 22.20 times forward earnings and has a dividend yield of 1.50%. Graco may be worth a second look on dips below $37/share. More conservative investors may require a dip below $29/share (prior year earnings)

The Hanover Insurance Group, Inc. (THG), provides various property and casualty insurance products and services in the United States and internationally. It operates through four segments: Commercial Lines, Personal Lines, Chaucer, and Other.

Last week, the company raised its quarterly dividend by 11.10% to 60 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Over the past decade, this company has been able to raise dividends by 17.70%/year. Earnings per share declined between 2007 and 2017 from $4.83 to $4.33. The company is expected to earn $7.16/share in 2017.

The stock looks attractively valued at 15.30 times forward earnings and yields 2.20%. I would add it to my list for further research.

Pfizer Inc. (PFE) discovers, develops, manufactures, and sells healthcare products worldwide. It operates in two segments, Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

The company raised its quarterly dividend by 5.90% to 36 cents/share. This marked the 9th year of dividend increases for Pfizer. The company has a ten year annual dividend growth rate of just 1%, due to the fact that it cut dividends in January 2009. Pfizer managed to grow earnings per share from $1.17 in 2007 to $2.65 in 2017. Pfizer is expecting to generate between $2.98 and $3.02/share in 2018. Despite cutting dividends in 2009, the stock has generated great performance for investors who held on. This lesson of course is not a clear cut one – investors who held on to General Electric for example didn’t do as well.

Pfizer looks attractively valued at 14.60 times forward earnings and a dividend yield of 3.30%. I should place the stock on my list for further research.

Abbott (ABT) is a global healthcare company devoted to improving life through the development of products and technologies that span the breadth of healthcare. The board of directors of Abbott (ABT) increased the company's quarterly common dividend to 32 cents per share, marking a 14 percent increase over the previous rate of payments. Abbott has increased its dividend payout for 47 consecutive years and is a member of the S&P 500 Dividend Aristocrats Index. The company has managed to grow dividends by 18%/year over the past five years. Abbott is expected to earn $2.88/share in 2018. Unfortunately, the stock is overvalued at 24.60 times forward earnings and yields 1.80%.

Dominion Energy, Inc. (D) produces and transports energy in the United States. The board of directors of Dominion Energy increased quarterly dividends to 91.75 cents per share of common stock, up from 83.50 cents per share in 2018, for a 9.90 percent increase.

This dividend increase marked the 16th consecutive year in which the annual dividend rate has increased. Dominion Energy has managed to raise its dividends at an annual rate of 8.60%/year over the past decade.

Between 2007 and 2017, the company grew earnings per share from $3.16 to $3.17 (adjusted for the $1.55/share impact of the new tax law that went into effect at the end of 2017). Dominion is expected to earn $4.09/share in 2018. The company is in the process of acquiring Scana Corporation, which could further boost earnings per share in the future. The stock looks pricey at 18.80 times forward earnings, which seems high for a utility. The yield seems nice at 4.80%, however the forward payout ratio is a little over 89%, which is high.

Waste Management’s (WM) Board of Directors approved a 10.2% increase in the planned quarterly dividend rate for 2019, from $0.465 to $0.5125 per share. This marks the sixteenth consecutive year that the Company has increased its planned quarterly dividend. This is what they had to say about the dividend increase in the press release:

“In 2018 we expect to generate strong free cash flow and return approximately 90% of that cash to our shareholders through dividends and share repurchases,” said Jim Fish, President and Chief Executive Officer of Waste Management, Inc. Our expected free cash flow growth, together with our disciplined approach to capital allocation, supports our decision to substantially increase our dividend rate and request a new share repurchase authorization. The planned $0.19 per share annual increase in our dividend is the highest that we have seen in fifteen years and demonstrates our confidence in the strength of the free cash flow generation of our business"

Earnings per share grew from $2.23 in 2007 to $3.22/share in 2017. The latter figure was adjusted for the impact of the new tax law signed at the end of 2017. The company expects to earn between $4.13 to $4.15/share in 2018. I like the stability of cashflows that wide-moat Waste Management and Republic Services offer to investors. Unfortunately, the shares are overvalued at 22.10 times forward earnings and yield 2.20%, It may be worth a second look on dips below 20 times earnings.

Urstadt Biddle Properties Inc. (UBA) is a self-administered equity real estate investment trust which owns or has equity interests in 84 properties containing approximately 5.1 million square feet of space. The REIT managed to eke out a small 1.85% hike in its quarterly dividend to 27.50 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. The ten-year dividend growth rate is 1.40%/year. The stock yields 5.20%.

Ventas, Inc. (VTR) is a real estate investment trust with a diverse portfolio of approximately 1,200 assets in the United States, Canada and the United Kingdom. The property portfolio includes of seniors housing communities, medical office buildings, life science and innovation centers, inpatient rehabilitation and long-term acute care facilities, health systems and skilled nursing facilities. The REIT boosted its quarterly dividend to 79.25 cents/share, which is a 0.30% increase.
This marked the 9th consecutive annual dividend increase for this Ventas. Over the past decade, this company has been able to raise dividends by 6.50%/year. The REIT yields 5.10%.

Relevant Articles:

Should I invest in AT&T and Verizon for high dividend income?
Realty Income Delivers High Yields and Dependable Dividend Growth
December 2018 Dividend Champions List
How long does it take to manage a dividend portfolio?

Thursday, December 13, 2018

Dividend Kings List For 2019

A dividend king is a company that has managed to increase dividends to shareholders for at least 50 years in a row.

There are only 26 such companies in the US, and perhaps a couple more in the rest of the world. It is not a small achievement to have been able to reward long-term shareholders with a dividend raise for over half a century.

Over the past 50 years, some calamities experienced include:

- The Vietnam War
- The oil crisis in the 1970s
- Stagflationary 1970s
- Double digit interest rates in the 1980s
- Fall of the Soviet Union in 1991
- 9/11 in 2001
- The Dot-com bubble bursting in 2000
- The housing bubble bursting in 2007 - 2008
- ZIRP and NIRP since 2009
- Seven Recessions since 1967…

Throughout this calamity each of those businesses managed to grow earnings, and raise the dividend to their long-term shareholders. If you are looking for a long-term shareholder base, the best way to build it is by paying those owners more every single year. This is a simple, but novel idea for corporations to embrace.

We had one new addition to the list in 2018, which brought the number of companies to 26. This is a record since we started tracking the list of dividend kings in 2010. When I first came up with the idea for the list of dividend kings in 2010, there were only eleven companies on it. While our 2018 list also included 26 companies, I had to remove Target for now, since its streak of annual dividend increases was only 48 years. I am pretty confident that the retailer will hit 50 years in a row by the end of the decade.

The new addition for the current year include:

Commerce Bancshares (CBSH)

The companies in the 2019 dividend kings list include:

Company Name
Years Dividend  Increases
Price 11/30/2018
Dividend Yield
10-yr Dividend Growth
3M Company
ABM Industries Inc.
Business Services
American States Water
California Water Service
Cincinnati Financial
Coca-Cola Company
Colgate-Palmolive Co.
Personal Products
Commerce Bancshares
Dover Corp.
Emerson Electric
Industrial Equipment
Farmers & Merchants Bancorp
Federal Realty Inv. Trust
REIT-Shopping Centers
Genuine Parts Co.
Auto Parts
Hormel Foods Corp.
Food Processing
Johnson & Johnson
Drugs/Consumer Prod.
Lancaster Colony Corp.
Food/Consumer Prod.
Lowe's Companies
Retail-Home Improv.
Nordson Corp.
Northwest Natural Gas
Parker-Hannifin Corp.
Industrial Equipment
Procter & Gamble Co.
Consumer Products
SJW Corp.
Stanley Black & Decker
Tools/Security Products
Stepan Company
Cleaning Products
Tootsie Roll Industries
Vectren Corp.

DGI Note: The prices and yields are as of November 30, 2018. Source: December 2018 Dividend Champions List

Vectren Corp. (VVC) is one company that would likely depart the list in 2019, since it is in the process of being acquired. However, there are three companies which are set to potentially join the elite list of dividend kings by the end of 2019:

Atria Group (MO)
Black Hills Corp. (BKH)
H.B. Fuller Company (FUL)

This track record is a testament to the stability of the underlying businesses that generated the earnings growth necessary to grow the dividend for half a century (and longer). This track record is an indication of a business that is relatively immune to outside shocks. This resilience throughout the period manifests itself into the long stretch of dividend increases, spanning over half a century.

While these companies are not investment recommendations, I post them as examples for further study by serious dividend investors. Studying the businesses, their industries, could give you clues as to the type of business that can flourish over a half of a century.

As I mentioned above, I have been compiling the list of dividend kings since 2010. To view the historical changes in the list, please follow the links below:

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