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Monday, June 25, 2018

Two Notable Dividend Increases To Consider

Last week, there were two notable dividend increases from companies I follow. Both companies are popular in the dividend investing community. I find those companies to illustrate very well the trade-off between dividend yield and dividend growth, as well as the principles of the three different phases of dividend growth.

The first company has a longer track record of annual dividend increases, albeit at a slower rate of annual growth. The payout ratio is relatively stable and the company also spots an above average yield.

The second company however has a shorter track record of annual dividend increases, but a higher rate of annual dividend growth. The payout ratio is increasing, and the company is starting to show a respectable dividend yield today.

The two notable companies which managed to increase dividends last week include:


Realty Income (O), The Monthly Dividend Company is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 5,300 real estate properties owned under long-term lease agreements with regional and national commercial tenants. The company raised its monthly dividend to 22 cents/share. This is a 4% increase over the dividend paid in July 2017. This dividend achiever has managed to increase dividends to shareholders annually since going public in 1994. Over the past decade, this REIT has managed to boost distributions at an annual rate of 4.40%/year. This was supported by a 4.10% annual growth in FFO/share over the past decade. The stock is attractively valued today at 17.30 times forward FFO and yields 4.90%. Check my analysis of Realty Income for more information about the company.

Starbucks Corporation (SBUX), together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; China/Asia Pacific; Europe, Middle East, and Africa; and Channel Development. The company raised its quarterly dividend by 20% to 36 cents/share. The dividend looks safe at a forward payout ratio of 59.50%. The company has managed to boost its dividend every year since initiating it in 2010. Annual dividends have increased at a rate of 23.90%/year over the past five years. Between 2008 and 2017, the company managed to grow earnings from $0.21/share to $1.97/share. The company is expected to generate $2.42/share in 2018. That being said, I would not expect earnings to go up by a factor of ten over the next decade. If Starbucks can double earnings per share over the next decade, it may deliver some great returns to patient shareholders. However, I find Starbucks to be slightly overvalued at 21.10 times forward earnings but yields 2.80%. It may be worth it to take a closer look at Starbucks if it dips below $48/share. Check my analysis of Starbucks for more information about the company.

Relevant Articles:

How to Generate a 15% Yield on Cost in Ten Years
Five Things to Look For in a Real Estate Investment Trust
Should Dividend Investors Worry About Rising Interest Rates?
Dividend Achievers Offer Income Growth and Capital Appreciation Potential
Three REITs Approaching Value Territory