I review the list of dividend increases every week, as part of my monitoring process. This exercise is very helpful, as it allows me to view how the dividend is progressing relative the ten year average.
Dividend rates are set out by company’s boards of directors, after taking into consideration the outlook for the business environment, the needs of the business and the excess cashflow that is generated from it. I view the rate of dividend increases as a helpful tool that allows me to see the near term sentiment from the company’s top executives.
I focus my attention on companies with a ten year track record of annual increases, in order to weed out cyclical companies whose dividends are not as dependable. As dividend growth investors, we are after companies that will pay and grow dependable dividends even during recessions. As a result, this review excluded the dividend increases by financial companies such as Wells Fargo (WFC), J.P. Morgan (JPM) and Bank of America (BAC), since those companies broke their long records of annual dividend increases during the Global Financial Crisis of 2007 - 2009.
Over the past week, there were three notable companies that announced dividend hikes. The companies include:
Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The company raised its quarterly dividend by 10% to 44 cents/share. This marked the 43rd consecutive annual dividend increase for this dividend aristocrat. Over the past decade, this company managed to boost its dividend at a rate of 16.20%/year. The company has managed to boost earnings by 6.40%/year over the past decade to $3.78/share in 2017. Walgreens is expected to earn $5.96/share in 2018. Right now ,the stock is attractively valued at 10 times forward earnings and yields an attractive 2.90%. Despite fears of Amazon disrupting the company’s business model, I think that it has more staying power than most sellers today estimate.
Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and small businesses in the United States. The company raised its quarterly dividend by 2.90% to 35 cents/share. The bank has consistently increased its regular quarterly cash dividends over the last twenty years. In addition, it also pays a special dividend to shareholders every December. Over the past decade, this bank has managed to grow its distributions at an annual rate of 5%/year. At the same time, the company has managed to boost earnings per share by 18.70%/year during the same time period. Hingham Institution for Savings is one of my best performing investments in terms of total returns. I am not even sure why I picked it up eight years ago, but obviously I have not regretted this decision. I did consider trimming the position on multiple occasions for a company with higher yields or higher dividend growth, but luckily I didn’t do anything because those actions would have been expensive. This just goes to show you that despite the mediocre yield and dividend growth, the rate of earnings growth is ultimately what drives long-term value creation for long-term shareholders. This underfollowed and thinly traded stock sells for 16.80 times trailing earnings and yields 0.60%.
The Kroger Co. (KR) operates as a retailer in the United States. The company operates supermarkets, multi-department stores, jewelry stores, and convenience stores. Kroger raised its quarterly dividend by 12% to 14 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Kroger has been able to reward shareholders with a 12.90% annual dividend increase over the past decade. At the same time, it managed to grow earnings per share by 9%/year to $2.09/share. The company is expected to earn $2.11/share in 2019. Right now the stock is fairly valued at 13.50 times forward earnings and yields 2%.
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