Tuesday, September 23, 2014

Three Dividend Stocks With Consistent Dividend Hikes

As a dividend growth investor, I value consistency in the types of companies I own. When I buy shares, I view myself as a partial owner in a business. My success is therefore dependent on the ability of that business to earn more money over time, in order to pay me more dividends in the future. In my experience as a dividend investor over the past seven years, I have found that the companies that earn a repetitive stream of sales to a loyal set of customers are the ones who end up with reliable revenues and earnings to pay the dividend to me as a part owner. From time to time even the best business experiences temporary weakness, which is usually an opportunity to increase my stake, after careful analysis of the situation.

I do have safety in numbers however, as the majority of my total dividend income is generated by approximately 40 – 50 companies. Therefore, even if I made one bad decision, my total dividend income keeps coming, and keeps growing. Most regular readers are keenly aware that one of the methods I use to monitor dividend growth stocks is to regularly check the list of dividend increases for the week.

Over the past week, the following dividend growth companies I monitor announced increases in their dividends:

McDonald’s (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company raised its quarterly dividend by 4.90% to 85 cents/share. This marked the 38th consecutive dividend increase for this dividend champion.

Per the words of the CEO “McDonald's global growth priorities – providing great-tasting food and beverages, creating memorable experiences, offering unparalleled convenience and becoming an even more trusted brand – focus on what matters most to our customers and serve as the foundation to building our business over the long term. Today's dividend increase reflects the continued strength and sustainability of our cash flow and our commitment to enhancing shareholder value. We expect to return $18 to $20 billion to shareholders between 2014 and 2016 and have returned $3.2 billion year-to-date August toward that target”

This was the slowest dividend increase since the late 1990s. The stock sells for 17.50 times forward earnings and yields 3.60%. Check my analysis of McDonald’s for more details on what my take on the company is.

W.P. Carey (WPC) invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties across the globe. This REIT hiked quarterly distributions to 94 cents/share. This dividend achiever has increased distributions for 16 years in a row. Over the past decade, it has managed to hike distributions by 6.30%/year. W.P. Carey yields 5.50% after the hike. This REIT is one of my mistakes of omission. I have monitored it for several years, and missed out on the opportunity to acquire a stake in 2012, when the plans for conversion to a REIT were announced. I then continuously decided against investing in the company, “because the price went too high”. I believe that investors in W.P. Carey today would likely do slightly better than investors in Realty Income over the next 10 years. Maybe one of these months I will admit I was wrong and initiate a position, using the dividends I receive from Realty Income (O) and American Realty (ARCP).

Microsoft (MSFT) develops, licenses, markets, and supports software, services, and devices worldwide. . The company raised its quarterly dividend by 10.70% to 31 cents/share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, Microsoft has managed to boost dividends by 15%/year. The stock sells for 17.30 times forward earnings and yields 2.70%. I have analyzed the company before, but never really did anything about initiating a position. The company has a strong brand, and a business model I understand very well. However, I am not sure what the future of computing will be in 20 years, and how Microsoft will fit into it. Hence, it is on the too hard pile – meaning it is probably outside my circle for now.

That being said, I value each one of those companies for their consistency in dividend increases. To arrive at this list, I focused on companies that announced increases in dividends in the past week, and then focused only on those that have grown them for at least a decade.

Full Disclosure: Long MCD

Relevant Articles:

How to be a successful dividend investor
How to read my weekly dividend increase reports
The work required to have an opinion
Dividends Provide a Tax-Efficient Form of Income
My Dividend Goals for 2014 and after

5 comments:

  1. I still remember looking at MSFT when it was below 30 (2012/2013). Now it's just to high for my taste. MCD is at a much better price level.

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    Replies
    1. I see MSFT as a survivor over the long haul. It's model is to take what others have done and improve upon it. They know what areas of technology to stay out of and which to invest in.

      Delete
  2. Is this the down market we have been waiting for? Can I get all ecstatic now?

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  3. I am hopeful for additional declines in stock prices through October, when I will have some money to put to work. Of course, if stock prices start sliding, they can get really low - maybe 15 - 20 % if we really get an actual correction. That would mean more values for each dollar of the enterprising dividend investor.

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  4. Interesting article, and as always thank you! W P Carey just announced they are issuing additional stock, which sort of threw me a curve ball. I invested in it when they converted to a REIT, and have been pleased with their performance. But when they issued new stock, effectively diluting all of us, it caused me to reconsider. What do you think about this?

    ReplyDelete

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