Monday, October 26, 2015

Four Dividend Growth Stocks Rewarding Investors with a Raise

I invest in dividend growth stocks for two reasons; the predictability of dividend income and predictability of dividend increases. I usually have a very good handle on the payment schedule of each dividend payment. I also know when to expect a dividend increase from each company I own. Most companies raise dividends once an year. A few select ones manage to boost dividends to shareholders more often than that. Either way, since I started tracking my organic dividend growth from my portfolio, the raises have been much higher than the raises I receive from my day job ( where I spend 40 – 60 hours/week). It is a very nice feeling to receive a raise for an investment that I may have done several years ago, without really having to do any subsequent work on it.

Monitoring the rate of change in dividend payments is one of the things I look for when I monitor dividend growth stocks. A company that is experiencing short-term turbulence and still manages to deliver a substantial dividend increase signals confidence in the business. A company that tells investors that things are going to turn around quickly, but raises dividends by a token amount usually raises red flags in my monitoring process.

Over the past week, there were several notable dividend increases from companies I own:


Kinder Morgan, Inc. (KMI) operates as an energy infrastructure and energy company in North America. The company operates through Natural Gas Pipelines, CO2, Terminals, Products Pipelines, Kinder Morgan Canada, and Other segments. The company raised its quarterly dividend to 51 cents/share. This represents a 15.90% increase over the dividend paid during the same time last year. The company has raised quarterly dividends for 5 years in a row. A large portion of my stake was built as a result of my holdings of Kinder Morgan Management LLC (KMR), which was acquired in the roll-up in late 2014. After reading the press release, it looks like the company has generated ample distributable cash flow per share over the first 9 months of 2015.

While management expects slower dividend growth (6%-10%/year) than the 10%/annual growth previously expected, I am not worried. A few month ago, I actually discussed the fact that the dividend growth will likely be lower than 10%/year. When I see a company that can pay me a 7% dividend yield, which it can also grow at more than 5%/year, I am ecstatic to be a shareholder. Either way, I am not planning on adding to Kinder Morgan, because it is one of my largest positions.

ONEOK, Inc. (OKE), through its general partner interests in ONEOK Partners, L.P., engages in the gathering, processing, storage, and transportation of natural gas in the United States. The company raised its quarterly dividend to 61.50 cents/share. This represents an increase of 4.20% over the distribution paid during the same time in the past year. The company has managed to increase dividends to shareholders for 13 consecutive years. The ten year dividend growth rate is 18.70%/year. The stock yields 6.80%. Per the press release from Q2, it looks like there is a good distribution coverage for the General Partner.

The issue I am seeing however is that the limited partnership, ONEOK Partners (OKS), which is owned by ONEOK Inc (OKE) has been unable to cover distributions from distributable cash flows through Q2 2015. This is probably one of the reasons why ONEOK Partners has not raised its quarterly distributions to unitholders for the past year – which is rare for MLPs. I am going to monitor this position closely, because a potential distribution cut could result in a dividend cut at ONEOK. This of course will be a sell in my book.

V.F. Corporation (VFC) designs, manufactures, markets, and distributes branded lifestyle apparel, footwear, and accessories in the United States and Europe. This dividend champion announced that it is hiking its quarterly dividend by 15.60% to 37 cents/share. This marked the 43th consecutive annual dividend increase for VF Corporation. The company has managed to boost dividends by 15.50%/year over the past decade. Currently, it is selling for 19.80 times expected earnings and yields 2.30%. I would look forward to adding more on dips below $60/share. Check my last analysis of VFC. I recently purchased shares of VF Corporation.

Visa Inc. (V), a payments technology company, operates as a retail electronic payments network worldwide. The company raised its quarterly dividend by 16.70% to 14 cents/share. This marked the seventh consecutive annual dividend increase for Visa. The stock is overvalued at 29.30 times estimated 2015 earnings per share, and yields 0.70%. The stock spots a five year dividend growth of over 30%/year. Check my last analysis of Visa on Seeking Alpha.

Full Disclosure: Long VFC, V, OKE, KMI

Relevant Articles:

The predictive value of rising dividends
Dividend income is more stable than capital gains
Investors Should Look for Organic Dividend Growth
How to turbocharge dividend growth
How I Manage to Monitor So Many Companies

7 comments:

  1. I own KMI, V, and a tiny bit of VFC and it sure was great seeing solid increases from all three of them.

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    Replies
    1. I like dividend growth investing at work PIP! Earning more dividend income without adding new capital to work is pretty nice

      Delete
  2. I own the same 3 stocks are PIP after getting VFC on sale Friday. V is a full position at 3% of the portfolio, but KMI and VFC are only 1% each and I would love to add if the prices continue to go down (especially VFC around $57). Thanks for the heads-up, DGI.

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    Replies
    1. Hi Keith,

      I own a lot of KMI., while OKE and V are roughly similar in weight. VFC is a small position now, that could grow into a larger position over time

      Thanks for stopping by!

      Delete
  3. I like KMI and have recently added to my position. I want to take advantage of this sell off in energy and by another high yielding energy company or MLP. In your opinion can you recommend a high yielder that has good dividend coverage and would be considered a safe play?

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    Replies
    1. Hi Junior,

      Depending on who you listen to, KMI is either the best dividend growth stock for the next decade, or a house of cards. I think it is the former, and so far KMI has not disappointed in terms of dividend increases. That being said, this is my opinion, and not an investment recommendation for you to act upon. This site only shows what I think about investments, not what you should invest in.

      I do not provide individual investment recommendations

      Dividend Growth Investor

      Delete
  4. Thanks for the insight DGI. Love your blog and I share the same common goal of reaching the dividend crossover point. I feel the same way about KMI and will continue adding to my position if the price stays under $30. Richard Kinder seems committed to increasing cash flow to shareholders through dividends. A 7% dividend that has a good chance to increase for years to come is a slam dunk.

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