Friday, November 27, 2020

Six Companies Rewarding Their Thankful Shareholders With a Raise

There were several companies over the past week which announced their intent to raise dividends to shareholders. It is always great to see companies that are able to extend their long streaks of annual dividend increases. I find dividend increases to be a good indicator of how company executives feel about the near-term business environment. It also shows their confidence in the company’s growth prospects. 

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.

I review these press releases as part of my monitoring process. For the purposes of this article, I narrowed the list of dividend increases down to a more manageable level.

I focused on companies that can afford to grow dividends for at least a decade. I figured that a company which has managed to boost dividends during a recession and an expansion, or even longer, is better suited for further research by a long-term dividend growth investor like me.

In my previews, I look at the most recent dividend increase, and compare it to the ten year average. While there are some year-over-year fluctuations in dividend growth, it is helpful to see if dividend growth is decelerating.

In addition, it is helpful to review trends in earnings and dividends, alongside dividend payout ratios. This is another indicator of dividend safety.

Last, but not least, I also try to review the valuation behind every company. I prefer to buy future dividend income at attractive valuations; overpaying for future dividend income is not a good business decision.

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 5.40% to 24.50 cents/share, marking the 55th consecutive annual dividend increase for this dividend king. Hormel Foods has managed to increase distributions at an annualized rate of 16% over the past decade.

Between 2010 and 2020, Hormel managed to triple its earnings from 73 cents/share to $1.69/share.
Analysts expect Hormel to earn $1.80/share in 2021. 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 26 times forward earnings. The stock yields 2.10%. I may consider it if it dips below $36/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 5.10% increase to 83 cents/share. Becton Dickinson has raised its dividend for the 49th consecutive year. If BD hikes dividends in 2021, this dividend champion will be upgraded to the elite dividend king status. Over the past decade, Becton Dickinson has managed to boost dividends at an annualized rate of 8.90%.

The company earned $5.49/share in 2010 and analysts expect Becton Dickinson to earn $12.53/share in 2021. 

The stock seems fairly valued at 18.15 times forward earnings and a dividend yield of 1.45%. 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 9.70% to 68 cents/share. This marks the 35th 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 $2.75/share in 2010, and managed to grow this to $5.24/share in 2019.
Analysts expect that McCormick will earn $5.71/share in 2019.

Unfortunately, this great company is overvalued at 32.50 times forward earnings and yields 1.45%. 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 47 cents/share, which is a 4.40% increase over the dividend paid during the same time last year. This dividend champion has consistently increased regular quarterly cash dividends over the last twenty-five years. The bank also announced a special dividend in the amount of 70 cents/share. During the past decade, it has managed to increase dividends at an annualized rate of 6.10%.

The company managed to grow earnings from $4.81/share in 2010 to $17.83/share in 2019.
The stock is fairly valued at 10.80 times earnings and offers a dividend yield of 0.85%.

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 18.74 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.

The company earned $0.71/share in 2010 and managed to grow earnings to $1.11/share in 2019.

Analysts expect the company to earn $1.25/share in 2020.

The stock is overvalued at 37.22 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 2.50% to 30.25 cents/share. With this announcement, SJI has increased its dividend for 22 consecutive years. During the past decade, this dividend achiever has managed to boost distributions at an annualized rate of 6.90%.

Analysts expect that South Jersey Industries will generate $1.56/share in 2019.

The stock is fairly valued at 15.80 times forward earnings and offers a dividend yield of 4.90%. Sadly, the dividend payout ratio is at 78%, which means that the pace of future dividend growth will be slow at best.

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

Thursday, November 26, 2020

Dividend Growth Investor Black Friday and Cyber Monday Sale

Dear Readers,

I have a special deal for you on through this Black Friday and Cyber Monday. I would like to offer a subscription to my premium newsletter for a low price of $65/year. You can sign up for a 7 day free trial below:





Instead of waking up early after your Thanksgiving feast, and waiting in line in the cold, you can simply sign up online and gain a wealth of knowledge at your finger tips.

As part of this limited time promotion, you will receive the following:

- Dividend Stock Ideas I am investing in for the month
- A list of dividend portfolio holdings
- Valuable Education to help you towards your journey to financial independence

The goal of this dividend newsletter is to provide a real-world and real-time educational tool, to help achieve dividend investing goals. I provide a listing of ten companies that I will purchase with my own money, and show you how I build and manage a portfolio from scratch. The newsletter includes detailed analysis of each company, and includes bonus materials on dividend growth investing.

In my investing, I believe in the following principles:

- Buy and hold investing
- Dividend Growth Investing
- Dividend Safety
- Value Investing
- Diversification
- Equal weighting
- Keeping investment costs low

I put all of these concepts together in building and managing the portfolio in the Dividend Growth Investor newsletter.

I believe that this newsletter will provide educational insights to investors in the accumulation phase, as well as those who are at or near retirement. The concepts discussed in the newsletter are the same ones I have used for over a decade to build my dividend growth stock portfolio.

If you subscribe today at the low introductory price of $65/year, your price will never increase. I believe that this newsletter is a bargain at less than 20 cents/day. Sing up for a free trial today:






The newsletter was just published on Sunday, November 22nd. I included nine dividend companies I am including in my portfolio this month. After the month is complete, I will be able to send out a list of dividend portfolio holdings on December 6th.

On Tuesday, December 1st, the price of the newsletter increases to $76/year. I have a limited number of open spots remaining, which is why I may have to turn people away if there is too much interest. This is a one person operation, and will remain that way to preserve quality.


Monday, November 23, 2020

Nine Cash Machines Hiking Dividends Last Week

 I review the list of dividend increases every week, as part of my review process. I focus my attention on companies that raised dividends in the current week, and have at least a ten-year track record of annual dividend increases.

Only a company with a strong cash flow generating business can afford to grow dividends for a long period of time. Therefore, a business growing dividends for at least a decade is worth looking at for further research.

There were nine companies that fit the criteria. You can view the five companies in the table below:

Aflac Incorporated (AFL) provides supplemental health and life insurance products. It operates through two segments, Aflac Japan and Aflac U.S. The company raised its quarterly dividend by 17.86% to 33 cents/share. This marked the 38th consecutive annual dividend increase for this dividend aristocrat. During the past decade Aflac has managed to grow dividends at an annualized rate of 6.80%. Between 2009 and 2019, Aflac managed to boost earnings from $1.59/share to $4.43/share. Aflac is expected to generate $4.93/share in 2020.  Right now the stock is attractively valued at 8.90 times forward earnings. Aflac yields 3%.

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.  The company hiked quarterly dividends by 9.68% to 68 cents/share, marking the 34th year of consecutive annual dividend increases for this dividend aristocrat. McCormick has managed to increase dividends at an annualized rate of 9.04% during the past decade. Between 2009 and 2019, McCormick has managed to grow earnings from $2.27/share to $5.24/share. The company is expected to earn $5.71/share in 2020. The stock is not cheap at 32.20 times forward earnings. McCormick yields 1.50%.

Brown-Forman Corporation (BF.B) manufactures, bottles, imports, exports, markets, and sells various alcoholic beverages.  The company raised its quarterly dividend by 3% to 17.93 cents/share. This marked the 37th year of annual dividend increases for this dividend aristocrat. During the past decade, Brown-Forman has managed to boost dividends at an annualized rate of 8%. Brown-Forman managed to grow earnings from 81 cents/share in 2010 to $1.72/share in 2020. The company expects to earn $1.92/share in 2021. The stock is overvalued at 41.50 times forward earnings and yields 0.90%.

NIKE, Inc. (NKE), designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. The company hiked its quarterly dividend by 12.24% to 27.50 cents/share, marking the 19th year of consecutive annual dividend increases. Nike has hiked dividends at an annualized rate of 13.195 over the past decade. Between 2009 and 2019, Nike managed to grow earnings from 76 cents/share to $1.60/share. Nike is expected to earn $2.86/share in 2020. The stock is overvalued at 46.50 times forward earnings and yields 0.80%.

First Financial Corporation (THFF) provides various financial services. It offers non-interest-bearing demand, interest-bearing demand, savings, time, and other time deposits. The company hiked its semi-annual dividend by 1.90% to 53 cents/share. This marked the 32nd year of consecutive annual dividend increases for this dividend champion. Over the past decade, it has managed to grow distributions at an annualized rate of 1.36%. First Financial Indiana managed to increase earnings from $1.73/share in 2009 to $3.80/share in 2019. The company is expected to generate $3.65/share in 2020. The stock is cheap at 10.22 times forward earnings. The stock yields 2.85%.

Matthews International Corporation (MATW) provides brand solutions, memorialization products, and industrial technologies worldwide. The company hiked its quarterly dividend by 2.40% to 21.50 cents/share. This marked the 26th annual dividend increase for this dividend champion. Over the past decade, it has managed to hike distributions at an annualized rate of 11.80%. The company earned $1.90/share in 2009 and is expected to earn $2.90/share in 2019. The stock is fairly valued at 9.50 times forward earnings and offers a dividend yield of 3.10%.

American Equity Investment Life Holding Company (AEL) provides life insurance products and services in the United States. The company raised its annual dividend by 6.67% to 32 cents/share. This marked the 18th year of annual dividend increases for this dividend achiever. During the past decade, American Equity has managed to grow dividends at an annualized rate of 14.10%. The company grew earnings from $1.18/share in 2009 to $2.68/share in 2019. Analysts expect earnings to hit $2.86/share in 2020. The stock looks cheap at 9.50 times earnings. It yields a little over 1.15%.

Royal Gold, Inc. (RGLD), acquires and manages precious metal streams, royalties, and related interests. The company hiked its quarterly dividend by 7.14% to 30 cents/share, marking the 20th consecutive increase in its dividend. Royal Gold has a ten year annualized dividend growth rate of 12.72%. The company has managed to grow earnings from $1.07/share in 2009 to $3.03/share by 2019. Royal Gold is expected to earn $3.65/share in 2020. The stock is not cheap at 30.10 times forward earnings. It yields 1.10%.

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 in two segments, Gas Utility and Gas Marketing. Spire hiked its quarterly dividend by 4.42% to 65 cents/share. This marked the 18th consecutive year of annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow dividends at an annualized rate of 4.41!. The ten year rate is equivalent to the rate of the latest dividend increase, which is somethign you seldom see.

Relevant Articles:


Thursday, November 19, 2020

My General Philosophy on Dividend Growth Stocks

In my previous article, I discussed in brief how I come up with investment ideas. I also wanted to share with you my general philosophy on understanding dividend growth stocks. 

In general, I look for a history of annual dividend increases. This is indicative of a business that generates a lot of free cash flow, which is a sign of a successful business model. 

I then dig into that business, in order to understand if it has some competitive advantages, which would allow it to continue succeeding. I also dig further into the business fundamentals, in order to determine if the rise in dividends per share was supported by a growth of earnings per share, and not because the dividend payout ratio was increasing. 

I look to understand how cyclical the business model is, which is a fancy way of saying that I want earnings that do not decline by a lot during recessions, but still participate on the upside during economic growth. Sustainable earnings can pay sustainable dividends through the ups and downs of the economic cycle. I want to buy companies at an attractive valuation, which can continue growing earnings, raising dividends and hopefully grow in value as well. 

I focus on valuation, although valuation is more art than science these days. A company with a low P/E is not necessarily cheap, because it is probably not growing earnings and dividends by much. If it pays a high portion of earnings as dividends, it may have a place in my portfolio, but I would not expect high returns.

For a company with a high P/E ratio, I expect high earnings and dividends growth over time. That company could find its place in my portfolio too.

I also evaluate how defensible or sustainable those earnings are too. I take a higher preference for defensible earnings streams, the types that consumer staples companies or healthcare and some utilities generate. It seems like the whole world has awaken to these valuable earnings streams however, and has bid them up. I am patient, and on the lookout to add to these companies that millions of consumers worldwide use on a daily basis, and have them ingrained into their recurring purchasing decisions.

Speaking of analyzing companies, I have shared with you my screening process over the past 12 – 13 years on my regular website. My screening process goes hand in hand with stock analysis, at least the quantitative side of it. It goes something like this:

1) A long track record of annual dividend increases. I use 25 years, but could go as low as 10 years

2) A minimum dividend growth of 6%/year over the past decade. I can fiddle around with this 
percentage too, and can go as low as 3%, or the annual inflation rate over the past decade. I want the past 1, 3, 5, and 10 years to have that minimum percentage of annualized dividend growth.

3) A dividend payout ratio below 60%. I want a lower payout ratio in general, in order to minimize the risk of a dividend cut during temporary earnings hit during the next recession. This ratio also needs to be adjusted for certain industries such as Utilities and Tobacco, which tend to distribute most of their earnings as dividends. You also need to use FFO for REITs, and be more comfortable with higher payouts. In my dividend analyses, I review trends in payout ratios, but for screening purposes, that would be a little tough to do.

4) A history of earnings growth. I find it helpful to observe trends in earnings per share over the past decade, and identify whether I like a company or not. In general, I want a consistent growth in earnings, and want to avoid companies that are no longer growing the bottom line. Sometimes you need to do additional research to gain comfort behind the trends however.

5) A P/E ratio that is below a certain number. This number varies, depending on the underlying conditions we are in. That means interest rates, the P/E of the stock market etc. When rates were 8% - 10%, a P/E of 10 would have been a good yardstick. When rates on 30 year Treasury Bonds are lower than 2%, even a P/E of 25 or 30 could signify a relatively cheap stock.

6) I used to have a minimum yield requirement, but I have dropped those when I realized that some of the best dividend growth stocks in the past were low yielding but high growth ones. I do follow the principle of building a portfolio of companies in the three types of dividend yield/growth.

Of course, I do not look at each one of these parameters in isolation. I try to combine all of these parameters into one full understanding of a company.

Armed with this knowledge, you can take a stab at the list of dividend aristocrats for example, and start digging further.

Relevant Articles:

Tuesday, November 17, 2020

Terry Smith on Investing in Tobacco Stocks

Terry Smith is a British fund manager, who has an impressive track record over the past decade at the fund he founded, Fundsmith. Some call him the British Warren Buffett.

I recently identified an interesting video of him discussing the tobacco industry. I wanted to share it with you, and include a transcript of his comments too:

Check the video here. https://twitter.com/DividendGrowth/status/1325799553065349121

You can read the full transcript from here:

"I mean they obviously own the number one brand in the world - Marlboro. One of our theories. I think it's a fact actually on the tobacco industry is that the tobacco industry is an illustration of the of the reverse of that great Reaganism. He said the nine most dangerous words in the English language are "I'm from the government and I'm here to help". 

The tobacco industry is an illustration that the best business you can be in is one that the government attempts to stop, because if you do a chart of the tobacco industry over many decades you'll find it wasn't a particularly strong performer until the government tried to stop it. And then the government got involved by pack warnings and then the surgeon general's pack warnings. Then litigation by the states, then litigation that was on a federal level ,then bans on advertising and marketing and now bans on packaging and so on. This has led to two things which have been hugely beneficial to their financial status (their operations, their returns, their profits, their cash flows and to us as shareholders.

And those are one: These are industries which have got fabulous returns on capital. In the end they're basically selling an addictive product. They will never face a new competitor. 

If you go into your boardroom and say I got a really good idea to the economics of tobacco. I think we should get in the industry it will be a very short conversation. Nobody's ever going to enter the industry.

 And normally the way in which super returns are competed away is by people entering the business. It can't happen.

So they've got this wonderful business with these fabulous returns and there's no one brand and they can't spend any money on advertising marketing or now packaging. What's not to like?

And then the final frontier. I mean, of course if you think you've got this brilliant brand down there and you're going to compete with Marlboro How do you do it? You can't advertise. No. 

And also with plain packaging, apart from the fact that all the statistics show it hasn't caused an iota of downturn in actual smoking; If you go into a shop, and there's no display of anything other green packs with horrible photographs on them, and you want something to smoke, you say something like: Do you have any Marlboro? Because you can't see what it is. It's all right. So I mean the Government's intervention is, I mean ,we are very very inclined to invest in things that the government thinks is a bad idea and they'll try and stop. "

It is interesting that he has had a position in Philip Morris International (PM) for the past decade. It is one of the largest positions in his mutual fund. 

Tobacco companies in general are undervalued today, with the likes of Altria (MO), British American Tobacco (BTI) and Philip Morris International (PM) selling at very cheap valuations. You may also like this video of Warren Buffett and Charlie Munger discussing tobacco companies, which I discussed before.

Another interesting fact is that Michael Burry, who is famous for his bets against housing right before the 2007 - 2009 Financial Crisis, just initiated a position in Altria Group (MO). It is fascinating to watch a lot of value investors seeing the opportunity in tobacco companies today.

Relevant Articles:

Warren Buffett and Charlie Munger on Investing in Tobacco Stocks

What if Altria went to zero?

Analysis of Altria's Recent Deal Activity

Altria (MO) - a recession proof high yield dividend stock

Philip Morris International versus Altria


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