As part of my monitoring process, I review the list of dividend increases every week. I use this exercise to check up on my holdings, and to get a feel for the rate of dividend increases for companies I may be interested in at some price point.
I try to focus on companies that have raised distributions for at least a decade. I have found that the ten year requirement tends to remove a lot of companies which fail at getting serious about establishing a serious track record of annual dividend increases.
I then review the rate of the most recent dividend increase relative the ten year average. I have found that the latest dividend hikes in percentage terms reflect management expectations for near-term growth.
I also want to review the growth in earnings per share over the past decade, in order to determine whether dividend growth is sustainable or is running on fumes.
Last but not least, we also want to determine whether the valuation is attractive. In general, we want a good balance between valuation and the growth trajectory of fundamentals.
Over the past week, there were three companies which raised dividends to their shareholders and have managed to increase dividends for at least ten years in a row. The companies include:
Leggett & Platt, Incorporated (LEG) designs and produces various engineered components and products worldwide. It operates through four segments: Residential Products, Furniture Products, Industrial Products, and Specialized Products. The company raised its quarterly dividend by 5.60% to 38 cents/share. This marked the 47th consecutive annual dividend increase for this dividend aristocrat. The company has managed to boost its distributions at an annual rate of 7.20%/year over the past decade. Between 2008 and 2017, Leggett & Platt managed to grow earnings from $0.73 to $2.14/share. The company is expected to earn $2.66/share in 2018.The stock is attractive at 15.80 times forward earnings and a dividend yield of 3.60%.
Chubb Limited (CB) provides insurance and reinsurance products worldwide. The company raised its quarterly dividend by 2.80% to 73 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. Over the past decade, Chubb has managed to grow its dividend at an annual rate of 10.40%/year. Between 2007 and 2017, Chubb managed to grow earnings from $7.66 to $8.14/share. The company is expected to earn $10.48/share in 2018. The stock seems cheap at 12.70 times forward earnings and a current yield of 2.20%. The slowdown in dividend growth, caused by lack of earnings growth over the past decade are not a good sign however. That being said, increases in interest rates over time should lead to higher interest income on the float that Chubb holds, which should translate into higher earnings per share.
Northrop Grumman Corporation (NOC) operates as a security company for government and commercial customers worldwide. It provides products, systems, and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance, and reconnaissance (C4ISR); strike; and logistics and modernization. The company operates through three segments: Aerospace Systems, Mission Systems, and Technology Services.
Last week, this dividend achiever raised its quarterly dividend by 9.10% to $1.10/share. This was in addition to January’s off-cycle increase. It demonstrates the company’s commitment to returning cash to shareholders through dividends and share buybacks. This dividend achiever has raised its dividends for 15 years in a row. The company has managed to boost its distribution at an annual rate of 11.30%/year over the past decade. Between 2007 and 2017, the company managed to grow earnings from $5.16 to $11.47/share. Northrop Grumman is expected to earn $15.91/share in 2018. The stock is slightly overvalued at 20.70 times forward earnings and yields 1.50%.
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