I review the list of dividend increases weekly, in order to monitor existing holdings and review companies on my list for accumulation at the right price. This exercise is part of my monitoring process.
It is helpful to check the rate of dividend growth relative to the historical average. In addition, it is helpful to see the earnings performance over the past decade. Looking at these two variables shows me whether there is room for further dividend growth, and whether I should spend my time digging further into a corporation.
I also find it helpful to review valuation, in order to acquire that future income stream at a discount. I review current P/E ratios relative to earnings growth expectations and current dividend yields. I use valuation as a tool to compare between different companies.
For the weekly review of dividend increases, I focus only on the companies that have managed to rewards shareholders with a raise for at least ten years in a row. That way, I focus on companies that have managed to boost dividends throughout a whole economic cycle of expansion and contraction. This indicates a higher likelihood that those businesses are resilient.
Over the past week, there were five companies which raised dividends and have a long track record of annual dividend increases. The companies include:
Donaldson Company, Inc. (DCI) manufactures and sells filtration systems and replacement parts worldwide. It operates through Engine Products and Industrial Products segments. The company raised its quarterly distribution by 5.60% to 19 cents/share. This marked the 32nd consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to hike its annual distribution at a rate of 14.10%/year. Between 2008 and 2017, the company managed to grow its earnings per share from $1.06 to $1.74. Donaldson Company is expected to earn $1.99/share in 2018. The stock is overvalued at 23 times forward earnings and yields 1.60%. The stock may be worth a second look on dips below $35/share.
Universal Corporation (UVV) engages in leaf tobacco business worldwide. It is involved in procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. The company raised its quarterly dividend by 36.40% to 75 cents/share. This marked the 47th consecutive annual dividend increase for this dividend champion. Over the past decade, it has been able to boost its annual dividends at a rate of 2.10%/year. Between 2008 and 2018, the company’s earnings went from $3.70/share to $4.14/share. During the same period, the number of shares outstanding decreased from 32 million to 24 million. The stock is fairly valued at 15.90 times earnings and a dividend yield of 4.50%. The lack of earnings growth over the past decade is making me less enthusiastic about the company as an investment. Without growth its earnings, we have a ceiling on the amount of future dividend growth that can be generated. As a result, I view Universal Corporation as a hold.
Cracker Barrel Old Country Store, Inc. (CBRL) develops and operates the Cracker Barrel Old Country Store concept in the United States. The company raised its quarterly dividend by 4.20% to $1.25/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 22.90%/year. Between 2008 and 2017, the company managed to grow its earnings from $2.80/share to $8.37/share. Cracker Barrel Old Country Store is expected to earn $9.42/share in 2018. The stock sells at 17 times forward earnings and yields 3.10%. While growth in earnings per share over the past decade has been impressive, the deceleration in the annual rates of dividend growth are preventing me from getting too excited about this opportunity. That being said, the valuation is attractive, and the dividend yield seems appealing enough to put this company on my list for further research.
Flowers Foods, Inc. (FLO) produces and markets bakery products in the United States. It operates through two segments, Direct-Store-Delivery (DSD) and Warehouse Delivery. The company raised its quarterly dividend by 5.90% to 18 cents/share, bringing its track record of annual dividend increases to 17 in a row. Over the past decade, this dividend achiever has managed to boost distributions at an annual rate of 13.70%/year. Between 2008 and 2017, the company grew earnings from $0.57/share to $0.71/share. The company is expected to earn $1.08/share in 2018. The stock is selling for 18.50 times forward earnings and yields 3.60%. It may be worth a second look for enterprising dividend investors. On the other hand however, there are other consumer staples in the food industry, which sell for lower valuation in terms of forward earnings ( e.g. General Mills).
Tiffany & Co (TIF) designs, manufactures, and retails jewelry and other items in the Americas, the Asia-Pacific, Japan, Europe, and internationally. The company raised its quarterly dividend by 10% to 55 cents/share. This marked the 16th annual dividend increase in a row for this dividend achiever. Over the past decade, it has managed to boost its annual dividend at a rate of 15%/year. Between 2009 and 2018, the company grew earnings from $1.74/share to $2.96/share. Tiffany is expected to generate a profit of $4.42/share in 2019. The stock is overvalued at 29 times forward earnings and a dividend yield of 1.70%. It may be worth a second look on dips below $88/share.
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