Monday, July 30, 2018

Seven Dividend Growth Stocks Rewarding Shareholders With a Raise

I review the list of dividend increases every week as part of my monitoring process. It is very helpful to keep up with the world of dividend growth stocks by monitoring regular dividend increases. This helps me to see up and coming future dividend growth stars, monitor existing holdings and see it as an excuse to do a deeper analysis of fundamentals.

In my weekly reviews of dividend increases, I usually look for companies that have managed to boost dividends for at least a decade. For today's review, I am making an exception. There is a companies I like, which may be good fits for my dividend growth portfolio if they are ever available at attractive valuations. Everything else is consistent with my process for identifying, screening and researching individual investments.

Over the past week, the companies that raised dividends and met my criteria above include:

McKesson Corporation (MCK) provides pharmaceuticals and medical supplies in the United States and internationally. It operates in three segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions. McKesson declared a $0.39/share quarterly dividend, which was 14.7% increase from prior dividend of $0.34. This marked the 11th consecutive annual dividend increase for this dividend achiever. The company has a 10 year dividend growth rate of 17.30%/annum. Between 2009 and 2018, the company managed to grow earnings from $2.95/share to $12.62/share. The company is expected to earn $13.35/share in 2018.
The stock looks attractively valued at 9.30 times forward earnings. McKesson yields 1.30%.

Aqua America, Inc. (WTR) operates regulated utilities that provide water or wastewater services in the United States. It offers water and wastewater services through operating and maintenance contracts with municipal authorities and other parties. The company raised its quarterly dividend by 7% to 21.90 cents/share. This marked the 27th year of dividend increases for this dividend champion. Over the past decade, the company has managed to boost distributions at a rate of 7.50%/year.

“Our long history of paying consistent and growing dividends over the last 27 years demonstrates our commitment to returning value to shareholders,” said Aqua America’s Chairman and CEO Christopher Franklin. “We are proud that our operational excellence and financial strength have allowed us to deliver value to shareholders while continuing to serve more customers and invest in infrastructure.”

Between 2008 and 2017 earnings per share grew from $0.58 to $1.35/share. Aqua America is expected to earn $1.40/share in 2018.

The stock is overvalued at 26.30 times forward earnings. Aqua America yields 2.40%.

Diageo plc (DEO), together with its subsidiaries, produces, markets, and sells alcoholic beverages worldwide. The company offers a collection of brands across spirits, beer, cider, and wine categories.
The board of directors of Diageo recommended a final dividend increase of 5% bringing the full year dividend to 65.3 pence per share. The company pays dividends twice per year in a 60:40 ratio. The final dividend is for 40.4 pence per share, in order to bring the full year dividend to 65.3 pence per share. The interim dividend was 24.90 pence/share. Diageo has increased its stock dividends for 20 years in a row.

Diageo earned 106.79 pence/share in 2017, which translates into a payout ratio of 61.10%.
The stock closed at 2836 pence/share in London on Friday. This translates into a P/E of 26.60 and a dividend yield of 2.30%. I find Diageo to be overvalued today. The stock was available at better entry valuations a couple of years ago.

On a side note, the Diageo shares that trade on the NYSE are American Depository Receipts, which give the right to 4 shares traded in London ( the ones which I discussed immediately above). If possible, it is better to buy directly in London, because the US ADRs come with a small but recurring annual fee ( though you will have to deal with exchanging currencies).

Republic Services, Inc. (RSG) provides non-hazardous solid waste collection, transfer, recycling, disposal, and energy services for small-container, large-container, municipal and residential, and energy services customers in the United States and Puerto Rico.

The company raised its quarterly dividend by 8.7% to 37.50 cents/share. This marked the 15th year of consecutive annual dividend increases for this dividend achiever.

"We are pleased to raise our quarterly dividend 9 percent," said Donald W. Slager, president and chief executive officer. "This is the ninth consecutive year we've increased our dividend, demonstrating our confidence in future cash flows and commitment to increase cash returned to shareholders."

Earnings per share rose from $1.51 in 2007 to $3.77 in 2017. Republic Services is expected to generate $3.05/share in 2018.

This otherwise great recession resistant company is overvalued at 23.80 times forward earnings. The stock yields 2.10%. I would be interested if it dips below $61/share.

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 operates through Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines segments.

ONEOK declared a $0.825/share quarterly dividend, 3.8% increase from prior dividend of $0.795. This is also a 10.70% increase over the dividend paid in August 2017.

ONEOK has managed to increase annual dividends since 2002.

The stock yields 4.70%

The Hershey Company (HSY) manufactures and sells confectionery products. The company operates through two segments, North America; and International and Other.
The company declared a quarterly dividend of $0.722/share which was a 10.1% increase from its prior dividend of $0.656. This marked the ninth consecutive annual dividend increase for this dividend contender. In the past decade, the company has managed to grow annual distributions at a rate of 8.40%/year.

Earnings per share rose from $1.36 in 2008 to $3.66 in 2017. Hershey is expected to earn between $4.76 and $4.96/share in 2018.

The stock is selling for 20.40 times forward earnings at the low range, and yields 3%. I may be interested in adding to Hershey on dips below $95/share.

Magellan Midstream Partners, L.P. (MMP) engages in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. The company operates through Refined Products, Crude Oil, and Marine Storage segments.

Magellan Midstream Partners declared $0.9575/unit quarterly distribution, which was a 2.1% increase from the prior distribution of $0.9375/unit. The second-quarter 2018 distribution is approximately 8% higher than the second-quarter 2017 distribution of 89 cents per.
This MLP yields 5.40%. Magellan Midstream Partners is one of the better managed MLPs out there. The other one being Enterprise Product Partners (EPD).

Relevant Articles:

Diageo (DEO) Dividend Stock Analysis
How to read my weekly dividend increase reports
- Seven Dividend Paying Companies Rewarding Shareholders With A Raise
Five Companies Committed to Increasing Returns To Shareholders

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