Thursday, December 12, 2019

How to turn $40 into $18 million

Coca-Cola (KO) is a dividend king, which has managed to increase dividends to shareholders for 57 years in a row. The company has paid dividends for 100 years. It is a widely-owned company, and a favorite for many dividend investors.

In 1919, Coca-Cola had its IPO. The stock sold at $40/share to investors and had a yield of 5%.
By 1920, the stock had declined by 50% on fears that sugar prices were going up. Investors saw unrealized losses and a gloomy near terms picture.

As we all know, Coca-Cola ultimately became a dominant blue chip company. But that wasn’t so evident in 1920.

As Ben Graham said: "In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine."

Those $40 invested in 1919 turned into a little over $18 million a century later with dividend reinvestment.

This is the result of a long-term compounding at a high rate of return over long periods of time. It is basic math.

Getting those returns was not easy however. There were obstacles along the way, which would have easily convinced any investor that the best days for Coca-Cola were behind it.

Back in 1938 for example, Fortune Magazine warned investors that the best days for Coca-Cola are already behind it: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him."



If you look at the stock price chart however, it looks like there were several long periods, where the only returns came in the form of dividends.

1938 – 1959
1972 – 1985
1998 – 2016

It is very likely that investors were questioning their choices, given the stagnant share price for extended periods of time. There was always some fear that the best days are behind Coca-Cola. Yet, after forming a long base, and exhausting impatient stockholders into selling, Coca-Cola reinvigorated itself and became a Wall Street darling one more time.

Patient dividend investors who were satisfied with the stability of the product demand, and the stability of their dividend checks kept holding onto the stock through thick and thin. When you are getting paid to own a stock, it is much easier to ignore where the stock price goes. It is also easier to ignore negative news about a company, which surely come after share prices have gone nowhere for a long period of time or after they have declined. Buying a stock for its dividend is the ultimate edge that gives dividend investors the patience to endure challenging conditions such as the long periods of time where prices went nowhere. Receiving a dividend is a reminder that you are a part owner of a real business, which provides an economic purpose to others. As a result, you receive your proportional share of the profits in the form of cold hard cash.

I have found quite a few stories about successful Coca-Cola shareholders, who held on for decades. Their descendants held on for decades as well. Those smart and patient enough to invest in Coca-Cola 100 years ago have managed to provide for their families for several generations.

As I mentioned above, a $40 investment turned into $18 million with dividend reinvestment. The portfolio would be generating over half a million dollars in annual dividend income, which is twelve times the median income for a worker in the United States today. This is all coming from a $40 investment that compounded for a century. These $40 from 1919 had the same purchasing power of roughly $600 today.

If you and your trust fund kids and grandkids had simply lived off the dividend income during the past century however, you would have still done well.

For example, one of SunTrust’s predecessor companies was paid $100,000 in Coca-Cola stock for its work on its IPO in 1919. The bank kept the stock, and cashed in those dividends for over 90 years, before finally selling in 2012 for a tidy sum of $2 billion. Had they waited for seven more years, they could have doubled their money to $4 billion, but who is counting?

I received a lot of pushback when I originally posted the results of that fateful $40 investment in Coca-Cola in 1919, turning into $18 million with dividends reinvested. The common response to “ if you had invested in Coca-Cola in 1919..” was that you would be dead by now.

That is a very shortsighted response, because it ignores the realities of financial planning. In general, if you and your spouse are in your 20s or 30s, you could realistically have a 60 – 70 year period to plan for. This includes the lifetimes for you and your spouse only, as it is quite possible that at least one of these partners will make it for a longer time than the other. If you have children in your 20s or 30s, it is quite possible that you are looking at a 70 – 80 or even 90 year period for planning. If you want to create a sort of generational wealth that covers a few generations after you, and you have sufficient means, you can always set up a trust fund that can serve your goals in a way that you want them accomplished. While I would not put everything in one stock for a trust fund, I would have principal be held and just dividends be distributed to beneficiaries. Long-term planning is beyond the scope of this article, but if this concerns you, you should speak with a licensed professional who can set things up for you ( for a reasonable fee).

The long-term returns of the original investment in Coca-Cola has been widely publicized of course.
Warren Buffet has invested heavily into Coca-Cola, and has been an investor for over 30 years now. Between 1988 and 1994, Berkshire Hathaway acquired 400 million shares of Coca-Cola for $1.3 billion. He has a split-adjusted cost of $3.25/share. Coca-Cola has an annual dividend of $1.60/share. The company distributed $640 million in annual dividends to Berkshire in 2019. That means every two years, Buffett gets his cost basis back, while retaining ownership of the stock. That’s a nice yield on cost of 50%. The dividend is also a tax advantaged way for Berkshire Hathaway to recognize profits, and is more tax advantaged than capital gains. That's why Warren Buffett prefers dividends over capital gains.

Warren Buffett spoke extensively about it in his 1993 letter to shareholders:

Earlier I mentioned the financial results that could have been achieved by investing $40 in The Coca-Cola Co. in 1919. In 1938, more than 50 years after the introduction of Coke, and long after the drink was firmly established as an American icon, Fortune did an excellent story on the company. In the second paragraph the writer reported: "Several times every year a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late. The specters of saturation and competition rise before him."

Yes, competition there was in 1938 and in 1993 as well. But it's worth noting that in 1938 The Coca-Cola Co. sold 207 million cases of soft drinks (if its gallonage then is converted into the 192-ounce cases used for measurement today) and in 1993 it sold about 10.7 billion cases, a 50-fold increase in physical volume from a company that in 1938 was already dominant in its very major industry. Nor was the party over in 1938 for an investor: Though the $40 invested in 1919 in one share had (with dividends reinvested) turned into $3,277 by the end of 1938, a fresh $40 then invested in Coca-Cola stock would have grown to $25,000 by yearend 1993.

I can't resist one more quote from that 1938 Fortune story: "It would be hard to name any company comparable in size to Coca- Cola and selling, as Coca-Cola does, an unchanged product that can point to a ten-year record anything like Coca-Cola's." In the 55 years that have since passed, Coke's product line has broadened somewhat, but it's remarkable how well that description still fits.
Charlie and I decided long ago that in an investment lifetime it's just too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire's capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart - and not too smart at that - only a very few times. Indeed, we'll now settle for one good idea a year.

He also discussed it in a speech from the late 1990s. The video is titled “how to turn $40 into $5 million”. Source: Youtube

Even Coca-Cola itself posted a press release in 2012 that a $40 investment in 1919 would have turned into $9.80 million 93 years later. Those figures assume dividend reinvestment. Source: Coca-Cola Press Release


Today, the future for Coca-Cola looks bleak again. The company is at the crossroads, as sugary drinks consumption is declining, and people are supposedly becoming more health conscious. However, there is a bright spot for international expansion in developing markets. The share price is only marginally higher than the highs reached in 1998. At the time, the stock price was overvalued, while today it is still richly valued though not as high as 20 years ago.

Coca-Cola and many other great consumer franchises became extremely expensive in the late 1990s. At that time they could not be bought at prices that would produce a satisfactory return. Market prices for these stocks were materially higher than intrinsic value. The lost decade ending in 2009 has managed to correct that. As you can see, prices tend to overshoot on the upside, as in 1972 and 1998, and overshoot on the downside (as in 1999 – 2009).

It remains to be seen whether the best days of Coca-Cola are behind it, or whether it would stage another massive comeback. We won’t know for the next twenty years unfortunately. I do believe that a patient holder of Coca-Cola stock will probably do ok over the next 20 years for as long as the dividend is maintained and not cut. If the dividend is cut, I would be selling my shares one second after the announcement, because it would prove to me that my thesis and initial argument to buy and hold the stock was invalid.

Relevant Articles:

Coca-Cola (KO) Dividend Stock Analysis
How Warren Buffett earns $1,140 in dividend income per minute
This Is Why Warren Buffett Prefers Dividends Over Capital Gains
Investors Get Paid for Holding Dividend Stocks

Monday, December 9, 2019

Ten companies delivering value to their shareholders

A dividend increase shows a commitment to enhancing total shareholder returns through both strong business performance and returning cash to shareholders.

It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.

During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:

Ecolab Inc. (ECL) provides water, hygiene, and energy technologies and services worldwide. The company operates through Global Industrial, Global Institutional, Global Energy, and Other segments.

Ecolab raised its quarterly dividend by 2.20% to 47 cents/share. This marked the 28th year of annual dividend increases for this dividend champion. During the past decade, Ecolab has managed to hike distributions at an annualized rate of 12.20%.

Between 2008 and 2018, earnings grew from $1.80/share to $4.88/share. Ecolab is expect to earn $5.86/share in 2019.

The stock is overvalued at 31.80 times forward earnings and offers a low yield of 1%. Management cites an upcoming spin-off as the reason for this small dividend hike. I like the company, and so does Bill Gates. It would be nice to be able to initiate a position on dips below $120/share.

Universal Health Realty Income Trust (UHT) is a real estate investment trust. It invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers.

The REIT hiked its quarterly distributions by 0.70% to 68.50 cents/share. This was the second dividend increase over the past year, bringing the total for the year to 1.48%. This marked the 35th consecutive annual dividend increase for this dividend champion. During the past decade, this dividend champion has managed to grow distributions at an annualized rate of 1.40%.

Between 2009 and 2018, FFO/share has increased slightly from $2.80 to $3.28. That’s a very slow growth in distributions, coupled with a high FFO payout ratio of 83.50%.

Incidentally, when I analyzed this REIT in 2010, I didn’t mind the slow rate of distribution growth over the preceding decade, and the slightly higher FFO payout. I did like the low price to FFO ratio and the yield that was approaching 7%. After holding it for a few years, I sold it in 2013, and reinvested the proceeds in Digital Realty and Omega Healthcare, which seemed faster growing. Ironically, doing nothing would have resulted in a higher returns than doing the transaction. Go figure.

Unfortunately, today this REIT is overvalued at 37.20 times FFO and offers a dividend yield of 2.24%. I would like a better valuation before investing in a REIT like UHT.

WEC Energy Group, Inc., (WEC) provides regulated natural gas and electricity, and nonregulated renewable energy services in the United States. The company operates through six segments: Wisconsin, Illinois, Other States, Electric Transmission, Non-Utility Energy Infrastructure, and Corporate and Other.

The company increased its quarterly dividend by 7.20% to 63.25 cents/share. This marked the 17th year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 15.10%.

The company earned $1.52/share in 2008, and managed to grow the bottom line to $3.34/share by 2018.

WEC Energy Group is expected to generate $3.53/share in 2019. Earnings are expected to be in a range of $3.71 to $3.75 per share for 2020. The company's longer-term objective is to grow earnings per share at a 5 to 7 percent average annual rate, and target a dividend payout ratio of 65 to 70 percent of earnings.

The stock is overvalued at 24.1 times forward earnings and sells at dividend yield of 2.85%. If it dips below $74/share, it may be worth a second look.

Stryker Corporation (SYK) operates as a medical technology company. The company operates through three segments: Orthopedics, MedSurg, and Neurotechnology and Spine.

The company raised its quarterly dividend by 11% to 57.50 cents/share. This market the 27th year of annual dividend increases for this dividend champion. During the past decade Stryker has managed to grow distributions at an annualized rate of 19%.

Earnings rose from $2.78/share in 2008 to $9.34/share in 2018.
Stryker is expected to generate $8.23/share in 2019.

Just like other quality growth names, Stryker is selling for a premium 24.80 times forward earnings and offers a low yield of 1.15%.

The Toro Company (TTC) designs, manufactures, and markets professional and residential equipment worldwide.

The company raised its quarterly dividend by 11.10% to 25 cents/share. This marked the eleventh year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 18.20%/year.

Between 2008 and 2018, the company managed to grow earnings from 78 cents/share to $2.50/share
Toro is expected to generate $2.96/share in 2019.

The stock is overvalued at 26.60 times forward earnings and offers a low yield of 1.25%.

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

The company hiked its quarterly dividend by 8.30% to 65 cents/share. That was the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, this insurer has managed to boost distributions at an annualized rate of 17.30%.

As a result of its line of business, the earnings per share stream is volatile. Earnings rose from $3.86/share in 2009 to $9.09/share in 2018.

The Hanover Insurance Group is expected to generate $8.34/share in 2019.

The stock is selling for 16.30 times forward earnings and offers a well-covered dividend yield of 1.90%.

Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular, and fibrotic diseases.

The company raised its quarterly dividend by 9.80% to 45 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever.

Bristol-Myers Squibb earned $1.60/share in 2008, and managed to grow it to $3.03/share in 2018.
Bristol-Myers Squibb is expected to earn $3.50/share in 2019.

The stock is fairly valued at 17.10 times forward earnings and yields 3%.

C.H. Robinson Worldwide, Inc. (CHRW) is a third-party logistics company, that provides freight transportation services and logistics solutions to companies in various industries worldwide. The company operates through North American Surface Transportation and Global Forwarding segments.

The company hiked its distributions by 2% to 51 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.90%.

The company is expected to earn $4.44/share in 2019, and $4.38/share in 2020.

Hillenbrand, Inc. (HI) operates as a diversified industrial company in the United States and internationally. The company operates in two segments, Process Equipment Group and Batesville.

The company eked out a 1.20% increase in its quarterly dividend to 21.25 cents/share. The dividend increase is in line with the ten-year average. The company has managed to grow dividends annually since 2008. However, a lot of databases ignore the fact that Hillenbrand split into two companies in 2008. Prior to that, the company had a 35-year track record of annual dividend increases. This makes this company a dividend champion, and may also qualify it as a dividend king a few years from now.

Unfortunately, earnings have only increased from $1.66/share in 2009 to $1.92/share in 2019. It is no wonder that dividend growth is so anemic, given the slow rate of earnings growth. The company is expected to generate adjusted earnings of $2.53/share in 2020. Although it looks like earnings per share are finally expected to grow, in reality the adjusted figure has a lot of one-time items which may be of recurring nature. For reference, the 2019 adjusted earnings per share were at $2.45.

The stock is selling for 17.10 times earnings and yields 2.60%. Given the slow rate of growth, I do not view the current valuation as attractive enough.

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’s Board of Directors declared a quarterly dividend of 17.50 cents per share, which is a 9.40% increase over the previous quarterly distribution. This was the 23rd consecutive annual dividend increase for this dividend achiever. During the past decade Graco has managed to increase its quarterly distributions at an annualized rate of 7.90%/year.

Between 2008 and 2018, the company grew earnings from 66 cents/share to $1.97/share. The company is expected to generate $1.81/share.

The stock is overvalued at 27.20 times forward earnings and yields 1.40%.

Relevant Articles:

Spring Cleaning My Income Portfolio, Part II
Ten Companies Rewarding Investors With Dividend Hikes Last Week
Warren Buffett’s Eight Billion Dollar Mistake
Six Companies Rewarding Their Thankful Shareholders With a Raise

Thursday, December 5, 2019

Simon Property Group (SPG): A High Yield and High Risk REIT

Simon Property Group (SPG) is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations. Its properties across North America, Europe and Asia provide community gathering places for millions of people every day and generate billions in annual sales. I will analyze it using the guidelines for analyzing REITs that I have outlined before.

Simon Property Group has managed to increase dividends for 9 years in a row. The last dividend increase occurred in July 2019, when the Board of Directors increased the quarterly dividend to $2.10/share. This was a 5 cent increase over the prior dividend amount and a 5 percent increase over the distribution paid during the same time the previous year. If the streak of dividend increases continues, Simon may be able to join the elite group of 400 or so dividend contenders and dividend achievers. The REIT cut dividends in 2009 during the financial crisis, after raising them for about 8 years beforehand.

During the past decade, Simon Property Group has managed to increase dividends at an annualized rate of 8.80%. The historical rate of dividend growth seems favorable, even if we account for the dividend cut from 90 cents/share to 60 cents/share in 2009. It would be interesting to see how the dividend holds up, given the headwinds in the retail sector and malls/shopping centers.


Between 2008 and 2018, FFO/share has increased from $6.45/share to $12.13/share. Simon Property Group is expecting to generate FFO/share in 2019 in the $12 - $12.05/share range. The financial crisis resulted in a 20% decrease in FFO/share. I hope that management will not cut dividends during the next 20% decrease in FFO/share, even if the payout ratios are sustainable.

Developing new properties, raising rents and reducing costs are just a few ways in general to grow FFO/share. With the supposedly difficult environment for retail and malls, it is going to be difficult to grow by expanding too much. Another way to grow is by making acquisitions, which may result in synergies.

The company’s tenant base seems adequately diversified. It’s properties are also viewed as high quality, with average sales per square foot exceeding $650, and average rents hovering around 10 -12% of that figure.

Most retail malls have two types of tenants, anchor tenants and inline tenants. Anchor tenants are the key tenants with large stores and big names in the business. Anchor tenants attract other smaller tenants and customers to the mall. Smaller customers benefit from the traffic that anchor tenants draw to the mall. Anchor tenants pay lower rents and enter into long-term lease duration compared to inline tenants.

In Simon’s case, inline tenants pay anywhere between $50 to $65 per square foot. Anchor tenants pay around $4 to $8 per square foot.

Here is a listing of the top 10 inline lessees, which account for 17% of total revenues and 8.70% of square footage.



The largest anchor tenants are listed below:

These anchor stores account for 31% of square footage but less than 2% of total revenues. It is interesting to note that if these retailers fail, and the space can be re-leased to smaller stores, rental income may increase provided that foot traffic doesn’t materially decrease. After all, a major anchor retailer would fail due to lower foot traffic in the first place, that is not providing valuable foot traffic to the inline stores in the first place. Therefore, it may be a positive that the likes of Sears for example have failed. Using that space for other purposes could unlock hidden value potentially.

Decreasing interest rates have been a tailwind for Simon Property Group, as it has allowed the real estate investment trust to refinance to lower rates and to pick up projects at a lower cost of capital. The company has a conservative balance sheet, which is why it has enjoyed an advantage in cost of capital versus peers. It has a good credit rating, and debt maturities are staggered well.

Increasing investments abroad could be another potential tailwind, as is opening new centers or renewing leases or signing up tenants at higher rates. Redevelopments could also refresh properties, and result in an increase in traffic, rents and tenant interest.

The occupancy rates increased since the financial crisis until hitting a peak at 97% in 2014. Since then, occupancy rates have been somewhat steady around 95%. The financial crisis impacted everyone and the whole economy. The challenges ahead for REITs like Simon seem to be structural, due to changes in the way US consumers shop. The US retail market is overdeveloped, which may not bode well for future occupancy rates, at a time when shopping patterns change, and online becomes a bigger competitor from before.

The FFO payout declined from 55% in 2008 to 48% in 2011. This was due to a combination of dividends cuts and FFO declines. I do not believe the FFO Payout ratio was that aggressive in 2009, in order to cut the dividend. But management, perhaps due to high debt levels and in an effort to preserve liquidity decided to cut distributions at this time, even if they didn’t have to. Simon Property Group was one of the REITs that paid a large share of their distributions in the form of extra shares in the dark days of 2009, instead of providing cash to shareholders. They also resorted to selling stock at the time.

The FFO payout ratio has been increasing steadily from the lows in 2011 to around 65% in 2018. Based on forward FFO projections and the latest dividend increase, the forward FFO payout ratio is at 70%. While there is some margin of safety in the distributions, I do not think that high payouts are justified for companies like Simon. This is no Realty Income that operates under long-term triple-net leases. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth. I have believed that lack of earnings, or in this case FFO growth, could be a risky sign in terms of dividend safety.

The number of shares outstanding increased between 2008 and 2010, from 222 million to 291 million. This is one of the situations where shares were being given away at fire-sale prices when things were tough. Obviously, that is bad capital allocation. The number of shares outstanding ultimately peaked at 313 million in 2016, and have been going downwards very very slowly.

Simon Property Group is cheap today at a little over 12 times forward FFO/share and a juicy dividend yield of 5.60%. This is a good value in an environment where value is hard to find. Of course, the reason for the good valuation is that there is little FFO growth expected, and due to headwinds from the troubles of US retailers. There are some opportunities for growth, but also some opportunities for things to go wrong as well. You have to decide for yourself if the entry price justifies the risk you are taking, and if the potential return is sufficient to compensate for said risk. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth.

The situation does seem similar to Tanger (SKT), which also yielded 5% in 2017, but the stock was about to fall by 40%, while FFO/share and dividend growth flattened out. Of course, Tanger never cut dividends in its history, but both companies are connected to their founding families, which is usually a plus.

Relevant Articles:

Tanger Factory Outlets (SKT) Dividend Stock Analysis
Dividend Achievers versus Dividend Contenders & Champions
Five Things to Look For in a Real Estate Investment Trust
Twelve Companies Raising Dividends To Their Investors

Monday, December 2, 2019

Six Companies Rewarding Their Thankful Shareholders With a Raise

Factors that boards of directors consider when setting the dividend include future earnings expectations, payout ratio and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments.

This is why I find it very helpful to review dividend increases every week for established dividend growth companies. To be included in this list, a company should have managed to reward shareholders with a dividend hike for at least ten years in a row.

Over the shortened Thanksgiving week, we had six companies hiking distributions to their thankful shareholders. I have had the first five of these companies consistently raising dividends during Thanksgiving week for the past several years that I have been writing these review. The companies include:

Hormel Foods Corporation (HRL) produces and markets various meat and food products in the United States and internationally. The company operates through five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other.

Hormel Foods increased its quarterly dividend by 10.70% to 23.25 cents/share, marking the 54th consecutive annual dividend increase for this dividend king. Hormel Foods has managed to increase distributions at an annualized rate of 15% over the past decade.

Between 2009 and 2019, Hormel managed to triple its earnings from 63 cents/share to $1.80/share.
Analysts expect Hormel to earn $1.76/share in 2020. It looks like earnings per share have plateaued for three years in a row if analyst projections are correct.

I believe that the stock price is overvalued at 25.30 times forward earnings. The stock yields 2.10%. I may consider it if it dips below $35/share. Check my analysis of Hormel for more information about the company.

Becton, Dickinson and Company (BDX) develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products worldwide.

The company’s dividend eked out a small 2.60% increase to 79 cents/share. Becton Dickinson has raised its dividend for the 48th consecutive year. In two more years, this dividend champion will be upgraded to the elite dividend king status. This is the second year in a row of small annual dividend hikes, following the debt-laden acquisition of C.R. Bard. Over the past decade, Becton Dickinson has managed to boost dividends at an annualized rate of 10.20%.

The company earned $5.49/share in 2010 and analysts expect Becton Dickinson to earn $12.57/share in 2020.

The stock seems just a tad overvalued at 20.60 times forward earnings and a dividend yield of 1.20%. The rate of dividend growth has slowed down, and if you want to review earnings per share, you would have to dig a little deeper into things such as purchase accounting adjustments and other items that the company deems as one-time events.

McCormick & Company, Incorporated (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. The company operates in two segments, Consumer and Flavor Solutions.

McCormick managed to hike its quarterly dividend by 8.80% to 62 cents/share. This marks the 34th consecutive year that this dividend champion has increased its quarterly dividend. McCormick has managed to boost dividends at annualized rate of 9% over the past decade.

The company earned $1.94/share in 2008, and managed to grow this to $4.74/share in 2018.
Analysts expect that McCormick will earn $5.35/share in 2019.

Unfortunately, this great company is overvalued at 31.60 times forward earnings and yields 1.50%. Check my analysis of McCormick for more information about the company.

Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and small businesses in the United States.

The company increased its quarterly dividend to 41 cents/share, which is a 10.80% increase over the dividend paid during the same time last year. This dividend achiever has consistently increased regular quarterly cash dividends over the last twenty-four years. The bank also announced a special dividend in the amount of 60 cents/share. During the past decade, it has managed to increase dividends at an annualized rate of 5.50%.

The company managed to grow earnings from $2.96/share in 2008 to $13.90/share in 2018.
The stock is fairly valued at 13.80 times earnings and offers a dividend yield of 1.15%.

The York Water Company (YORW) impounds, purifies, and distributes drinking water. It also owns and operates three wastewater collection systems and two wastewater treatment systems.

The company raised its quarterly dividend by 4% to 18.02 cents/share. This is the twenty-third consecutive year that this dividend achiever has increased its dividend. During the past decade, York Water has managed to grow its distribution at an annualized rate of 3.20%.

York Water has stated that it has managed to pay dividends every year since 1816, but I have been unable to find any history on distribution payments that goes beyond 1912. If anyone from the company’s IR department is reading, I would love to see the data behind this claim.

Analysts expect the company to earn $1.14/share in 2019.

The stock is overvalued at 38.90 times forward earnings and sells at a dividend yield of 1.60%.

South Jersey Industries, Inc. (SJI) provides energy-related products and services. The company engages in the purchase, transmission, and sale of natural gas.

The company hiked its quarterly dividend by 2.60% to 29.50 cents/share. With this announcement, SJI has increased its dividend for 21 consecutive years. During the past decade, this dividend achiever has managed to boost distributions at an annualized rate of 7.60%.

Analysts expect that South Jersey Industries will generate $1.11/share in 2019.

The stock is overvalued at 28.10 times forward earnings and offers a dividend yield of 3.80%. Sadly, the dividend payout ratio is over 100%, which means that future dividend growth will be very hard to come by.

Relevant Articles:

Dividend Achievers Offer Income Growth and Capital Appreciation Potential
Ten Companies Rewarding Investors With Dividend Hikes Last Week
Nine Dividend Growth Stocks With Growing Yields on Cost
Eleven Dividend Growth Stocks For Further Research

Monday, November 25, 2019

Ten Companies Rewarding Investors With Dividend Hikes Last Week

Last week, there were ten dividend growth companies, which rewarded their shareholders with a dividend increase. This list was generated by scanning through the dividend increases for the last week, and then focusing only on these companies which are at least a dividend contender or a dividend achiever.  In other words, I focused on companies which have managed to increase dividends every single year for at least a decade. This is an accomplishment that less than 400 companies in the US have managed to achieve.

Today's list includes companies that have just recently marked their tenth anniversary of annual dividend increases. It also includes two dividend champions and one dividend king. Just because a company is featured on this list, that doesn't mean it is a good idea to invest in it. Investors need to develop their own framework for evaluating companies, which is why I share mine in those weekly reviews of dividend increases.

In my case, I review the most recent dividend hike, and compare it to the ten year average. This is helpful in determining the momentum in dividend growth.

I also review the trends in earnings per share, in order to determine if we have sufficient power behind future dividend increases.

Earnings per share are helpful to calculate the dividend payout ratio as well. That indicator is helpful in determining the safety of distributions. It is also helpful in avoiding companies growing distributions without earning more money.

Last but not least, I do a valuation check by focusing on P/E ratio, expected growth in earnings and dividends and the payout. This is as subjective as it can get, but it makes some logical sense to me that higher growth companies will have higher P/E's and lower yields versus slower growing companies.

The ten dividend growth stocks that rewarded shareholders with higher distributions last week include:

American Equity Investment Life Holding Company (AEL) provides life insurance products and services in the United States.

The company approved 7.10% increase to its annual dividend, bringing the total to 30 cents/share. This marks the twenty first consecutive year a cash dividend has been declared and the sixteenth year in a row that the Company has increased its cash dividend. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 14.90%.

Between 2009 and 2018 earnings per share increased from $1.18 to $5.01.

The company is expected to earn $5.48/share in 2019.

The stock is cheap at 5.30 times forward earnings and yields 1%. I would add it to my list for further research.

National Bankshares, Inc. (NKSH) provides retail and commercial banking services to individuals, businesses, non-profits, and local governments.

The company raised its semi-annual dividend to 72 cents/share. This marked the 21st year of annual dividend increases for this dividend achiever. During the past decade, it has managed to hike distributions at an annualized rate of 4.20%.

National Bankshares managed to grow earnings from $1.96/share in 2008 to $2.32/share 2018.
The company is expected to generate $2.57/share in 2019.

The stock is selling at 17.90 times forward earnings and yields 3.10%.

Brown-Forman Corporation (BF.B) manufactures, bottles, imports, exports, markets, and sells various alcoholic beverages worldwide.

The company raised its quarterly dividend by 5% to 17.43 cents/share. This marks the 36th consecutive year of dividend increases at Brown-Forman, and the 74th year of paying quarterly dividends at the company. During the past decade, this dividend champion has managed to hike annual distributions at a rate of 8.10%.

Between 2009 and 2019, the company has managed to hike earnings from $0.77/share to $1.73/share.
The company is expected to generate $1.79/share in 2020.

The stock is overvalued at 37.40 times forward earnings. Brown-Forman yields 1%. The stock may be a good idea on dips below $36/share.

Royal Gold, Inc. (RGLD) acquires and manages precious metal streams, royalties, and related interests. It focuses on acquiring stream and royalty interests or to finance projects that are in production or in development stage in exchange for stream or royalty interests, which primarily consists of gold, silver, copper, nickel, zinc, lead, cobalt, and molybdenum.

Royal Gold increased its quarterly dividend by 5.70% to 28 cents/share. This increase represents the 19th consecutive annual increase to Royal Gold’s dividend since dividend payments began in 2000.
Between 2009 and 2019, the company grew earnings from $1.09/share to $1.43/share.
The company is expected to generate $2.62/share in 2019.

The stock looks overvalued at 44.60 forward earnings and offers a dividend yield of 0.95%.

Farmers & Merchants Bancorp (FMCB) operates as the bank holding company for Farmers & Merchants Bank of Central California that provides a range of banking services to businesses and individuals primarily in the mid Central Valley of California

Farmers & Merchants Bancorp raised its semi-annual dividend to 7.15/share, which is a 2.14% increase over the dividend paid during the same time last year. Farmers & Merchants Bancorp has paid cash dividends and the 55th consecutive year dividends have been increased. As a result of the reliability of our cash dividends over many decades, it remains a member of a select group of only 27 publicly traded companies referred to as Dividend Kings.

However, its dividend growth is just 3.10% annualized over the course of the past decade.
Between 2008 and 2018, the company grew earnings from $28.69/share to $56.82/share. The stock is fairly valued at 13.80 times forward earnings and offers a dividend yield of 1.80%. I do not understand why the yield is so low, and the dividend growth is so low, when there is some decent earnings growth ( although if we exclude 2018 it looks like earnings growth was slow too).

Group 1 Automotive, Inc (GPI), operates in the automotive retail industry. The company sells new and used cars, light trucks, and vehicle parts, as well as service insurance contracts; arranges related vehicle financing; and offers automotive maintenance and repair services.

Group One Automotive raised its quarterly dividend by 3.60% to 29 cents/share. This marked the eleventh consecutive year of annual dividend growth for this dividend achiever.

During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 8.30%.

Between 2009 and 2018, the company managed to increase earnings from $1.49/share to $7.83/share.
The company is expected to generate $10.60/share in 2019.

The stock looks attractively valued at 9.60 times forward earnings. Group 1 Automotive yields 1.10%.

This looks like an attractive investment today, despite the low yield. However, this company is more cyclical than I would like to see. The dividend may not be as defensible during the next recession, as sales and earnings dip. The payout ratio is low, which means that the dividend will likely be maintained even if things got as bad as during the financial crisis.

Stock Yards Bancorp, Inc. (SYBT) operates as the holding company for Stock Yards Bank & Trust Company that provides commercial and personal banking services in Louisville, Indianapolis, and Cincinnati. Its deposit products include demand deposits, savings deposits, money market deposits, and time deposits.

The company raised its quarterly dividend to 27 cents/share. This marked the eleventh consecutive year of annual dividend growth for this dividend achiever.

During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 7.80%.

The company managed to grow earnings from $1.06/share in 2008 to $2.42/share in 2018.
The company is expected to generate $2.84/share in 2019.

The stock is fairly valued at 14.40 times forward earnings and offers a dividend yield of 2.60%.It looks like an interesting candidate for further research on dips.

Muncy Bank Financial, Inc. (MYBF) provides banking products and services to individuals and businesses in Pennsylvania. It accepts savings, money market, and checking accounts.

The company raised its quarterly dividend by 6.10% to 35 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 9%.

I have been unable to find financials for the past two years, and I do not want to do too much extra digging for the purposes of tis review. The yield is 3.70% and the P/E looks to be 11.90, based on 2018 EPS of $3.19. My financial databases did not have all annual EPS datapoints loaded, and the company website didn’t have any information before 2013 ( though I could find information going back to 2009 on that report). A company like that may need extra research, which may be a risk factor or an opportunity.

Spire Inc. (SR), engages in the purchase, retail distribution, and sale of natural gas to residential, commercial, industrial, and other end-users of natural gas in the United States. The company operates through two segments, Gas Utility and Gas Marketing.

Spire raised its quarterly dividend by 5.10% to 62.25 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to boost distributions at an annualized rate of 4.10%.

Between 2008 and 2018, the company has managed to grow earnings from $3.58 to $4.33/share.
The company is expected to generate $3.75/share in 2019. I believe that dividend growth has been running on fumes over the past decade.

The stock appears overvalued at 20.55 times forward earnings. The stock yields 3.20% today.

Roper Technologies, Inc. (ROP) designs and develops software, and engineered products and solutions worldwide. The company operates in four segments: Application Software; Network Software & Systems; Measurement & Analytical Solutions; and Process Technologies.
Roper Technologies raised its quarterly dividend by 10.80% to 51.25 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Over the past decade, it has managed to hike distributions at an annualized rate of 19%.

Roper grew earnings from $3.01/share in 2008 to $9.05/share in 2018.

The company expects to generate $13/share in 2019.

The stock is overvalued at 27.40 times forward earnings and offers a low dividend yield of 0.60%. Roper may be a good pick to research if it dips below $260/share.

Relevant Articles:

Twelve Dividend Growth Stocks In The News
Nine Dividend Growth Stocks With Growing Yields on Cost
Eleven Dividend Growth Stocks For Further Research
Seven Dividend Growth Stocks For Further Research

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