Monday, May 23, 2016

Four Reliable Dividend Payers Boosting Distributions

My retirement strategy is focused on building a dividend portfolio of high quality blue chips, which are reliable dividend payers. For my dividend portfolio, I look for companies which can regularly grow their dividends for years. A long record of dividend increases is an indication of a strong business model that produces reliable earnings, revenues and cash flows.

One of the ways I monitor my dividend portfolio holdings as well as the list of dividend growth stocks is by reviewing the list of dividend increases. I usually try to focus on companies that have raised dividends for at least a decade, when reviewing the rate of recent dividend increases. I did this to come up with the list of dividend increases to review today:

The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. The company operates through four segments: Cleaning, Household, Lifestyle, and International. The company raised its quarterly dividend by 3.90% to 80 cents/share. This dividend champion has been hiking dividends for 39 years in a row. The ten year dividend growth rate is 10.40%/year. The rate of dividend growth has slowed down considerably since 2013. Currently, the stock is overvalued at 26 times earnings and yields 2.50%. At this stage, I would not be adding to my position in Clorox. The company seems like a decent hold, where dividends are reinvested elsewhere. It would be more interested on dips below $100/share.


Leggett & Platt (LEG), Incorporated designs and produces various engineered components and products worldwide. The company operates through four segments: Residential Furnishings, Commercial Products, Industrial Materials, and Specialized Products. The company raised its quarterly dividend by 6.25% to 34 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 7.30%/year. However, the dividend growth has decelerated to 3.50%/year over the past five years. The stock is selling for 19.50 times earnings and yields 2.80%. I have not taken a deep dive into Leggett & Platt, mostly because trends in earnings per share always seemed to be all over the place. Given the 45 year record of regular dividend increases however, I should put on my list for a more detailed analysis.

Connecticut Water Service, Inc. (CTWS), together with its subsidiaries, operates as a regulated water company. The company operates through three segments: Water Operations, Real Estate Transactions, and Services and Rentals. The company raised its quarterly dividend by 5.60% to 28.25 cents/share. This marked the 47th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 2.20%/year. However, the dividend growth seems to be accelerating slightly over the past few years. The stock is expensive, as it is selling for 23.10 times earnings and yields 2.30%. A low yield, coupled with low dividend growth and a high P/E ratio is not a winning combination when purchasing a company. On the other hand, I like the fact that water is one type of regulated industries where you have low risk of obsolescence. I am going to put the company on my list for further research, because I am always fascinated by boring industries with slow and steady returns, plus low risk of obsolescence and a regulated monopoly type business model.

Northrop Grumman Corporation (NOC), a security company, provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide. The company raised its quarterly dividend by 12.50% to 90 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 13%/year. Northrop Grumman is an example of why conventional wisdom and popular opinion could be dangerous to your wealth building. The company’s revenues are down by a little over 22% over the past decade, while net income has climbed from $1.5 billion to $2 billion over that time period . As we all know, military spending by the US government has been cut due to budget constraints. At the same time, earnings per share have gone from $4.37 in 2006 to $10.39 in 2015 while dividends per share went from $1.16 to $3.10 during the same time period. This excellence was achieved through share buybacks at the time where the stock has a lower valuation. That being said, I think that the stock is fully valued at 20 times forward earnings and a dividend yield of 1.70% today. Given the high valuation, I do not expect that buybacks at the present time will have the necessary impact that they had when the P/E was lower.

Full Disclosure: Long CLX

Relevant Articles:

How to read my weekly dividend increase reports
How I Manage to Monitor So Many Companies
Should Dividend Investors be Defensive about these five stocks?
Clorox (CLX) Delivers a Disappointing Dividend Increase
Dividend Champions - The Best List for Dividend Investors

4 comments:

  1. Ive been keeping my eye on CLX also. Well run company, but agree it's a bit to expensive right now. I'm hoping for a nice dip to add myself.

    I love water utilities too. The problem is water utilities are hard to buy into as they always seem to trade for a premium. As you said regulated monopolies. Best is to wait for the next pullback and hope they get knocked down a bit.

    ReplyDelete
    Replies
    1. LHI,

      A lot of consumer staples, utilities, reits are selling at high valuations today. It looks like investors are paying for quality earning streams, which are stable and relatively recession resistant.


      There are a few water utilities i am targeting, and i agree that valuations are rich. I have to remind myself that i have to be patient, since overpaying for an earnings or dividend stream today would reduce my future returns

      Delete
  2. I've had CLX 4.5 years... yield is too low now for it to be a buy. Two buys, one at 3.7% and another at 3.2%. Decent annual dividend growth.

    NOC hasn't been in the buy zone lately... though I own its 2 competitors, LMT and RTN. Both have been possibly my best picks ever... with dividends reinvested over nearly 5 & 4 years they have IRR's of 28% and 26% respectively. Neither is a buy to me currently due to low yields, though I don't begrudge LMT since I bought with a nearly 6% yield and nearly 90% annual dividend growth since I purchased it. RTN has had 'only' 45% annual dividend growth.

    ReplyDelete
    Replies
    1. Hi Eddie,

      The PE on CLX is too high. The defense companies have done well. I own very little in defense stocks unfortunately. Glad to hear you have done so well

      Delete

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