Monday, May 11, 2015

Dividend Stocks Rewarding Patient Investors With a Raise

My goal is generate a sufficient stream of dividends that exceeds my expenses. In order to achieve that, I try to identify companies that have a track record of consistent dividend increases for further analysis. My analysis tries to determine if there is a margin of safety in the dividend and that this dividend is supported by earnings. I generally want a company where earnings and dividends grow hand in hand, though I am also aware that this is dependent on the stage the company is in. It is also helpful to determine if earnings can continue growing over time. When earnings are growing, a company can afford to grow dividends easily, and will get more valuable to investors in the process. The next important step in the process is purchasing that right quality company at the right price. Even the best dividend stock is not worth overpaying for. This process has helped me since I started my dividend investing journey in 2008.

The best positive confirmation that my analysis is working is when a company I own keeps increasing dividends years after I have purchased it. I monitor those dividend increases weekly for companies I own and companies I monitor. A few companies to note include:

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. The company raised its quarterly dividend by 7.30% to 70.25 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion. In the past decade, PepsiCo has managed to boost its dividends by 12.50%/year. The stock is overvalued at 21.40 times earnings and yields 2.90%. Check my analysis of PepsiCo.

Occidental Petroleum Corporation (OXY) engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing and Other. The company raised its quarterly dividend by 4.20% to 75 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever . In the past decade, Occidental Petroleum has managed to boost its dividends by 17.70%/year. The stock is overvalued at 70 times forward 2015 earnings of $1.11/share and yields 3.80%. Check my analysis of Occidental Petroleum.

Cardinal Health, Inc. (CAH), a healthcare services company, provides pharmaceutical and medical products and services in the United States and internationally. The company operates in two segments, Pharmaceutical and Medical. The company raised its quarterly dividend by 13% to 38.70 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. In the past decade, Cardinal Health has managed to boost its dividends by 31.10%/year. The stock is fully valued at 19.80 times earnings and yields 1.80%. When I analyzed the company in 2010, I didn’t like what I saw, because earnings per share had been flat for several years. It is good to evaluate mistakes of omission, in order to improve method for stock selection.

Buckeye Partners, L.P. (BPL) owns and operates liquid petroleum products pipeline systems in the United States. The master limited partnership operates through four segments: Pipelines & Terminals, Global Marine Terminals, Merchant Services, and Development & Logistics. The partnership raised its quarterly distribution to $1.15/unit. Buckeye Partners has raised distributions for 20 consecutive years. The MLP is selling for 18.10 times 2014 distributable cash flow per unit and yields 5.60%. I will add it to my list for further research, though the distribution coverage seems thin.

Spectra Energy Partners, LP, (SEP) through its subsidiaries, engages in the transportation of natural gas through interstate pipeline systems, and the storage of natural gas in underground facilities in the United States. The partnership raised its quarterly distribution to 60.125 cents/unit. Spectra Energy Partners has raised distributions for 8 consecutive years. The MLP is selling for 14.50 times 2014 distributable cash flow per unit and yields 4.50%. I would add this MLP to my list for further research.

Full Disclosure: Long PEP

Relevant Articles:

How to read my weekly dividend increase reports
The Importance of Consecutive Dividend Increases in Stock Selection
Margin of Safety in Dividends
Margin of Safety in Financial Independence
How to monitor your dividend investments

6 comments:

  1. Cardinal has long been on my radar too and I keep failing to pull the trigger. Misery loves company.

    ReplyDelete
    Replies
    1. I have found that in order to be a successful investor, I need to look at and learn from my past mistakes. And of course, I will keep making more mistakes in the future.

      To be successful in blogging however, my credibility increases when I discuss my best investments or only investment successes. In reality, minimizing errors and the impact of errors is the reason I have done well for the past 8 years. Go figure.

      Delete
  2. Thanks for the news on PEP. I had missed it.

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    Replies
    1. Well I like how positively surprised you would have been on June 30, when you received a 70.25 cents/share cash dividend for every PepsiCo share you owned. The smart thing you did was identify a good quality company, purchased it, and now you are getting a pay raise each year for a decision you made years ago! Those are the types of surprises I have gotten used to as a dividend growth investor ;-)

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  3. Thanks for the analysis. I've been thinking about adding Pepsi to the portfolio in one of my next few purchases.

    ReplyDelete
  4. Hi DGI

    It's always good to have increasing dividend growth over the years because it seems like the raise will just be there as you own it for longer number of years. Do they generally have low payout in order to do this? What about those with much higher payouts?

    ReplyDelete

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