As part of my monitoring process, I review the list of dividend increases every week. This is a helpful exercise that lets me identify dividend increases for companies I own. I also use this process to identify dividend companies for further research. For the review of dividend increases, I usually focus on companies that have raised dividends for at least ten years in a row. The only exceptions are for companies I own with lower than a ten year streak.
I run those companies through a basic list of requirements before analyzing them in a little but more of a detail. Those include growth in earnings per share, growth in dividends per share, dividend safety and valuation. At the end of the day, as dividend investors we want to buy our retirement at an attractive price. We also want to purchase those assets with expected growth in earnings to drive future dividend growth. When you combine the effects of a sustainable dividend payout ratio and earnings growth, we also have an above average safety factor in the dividend payment.
The two companies with recent dividend increases that I reviewed include:
A. O. Smith Corporation (AOS) manufactures and markets residential and commercial gas and electric water heaters, boilers, and water treatment products in North America, China, Europe, and India. The company raised its quarterly dividend by 22.20% to 22 cents/share. This was the second dividend increase this year for A.O. Smith. A.O. Smith is a dividend champion with 25 years of annual dividend increases under its belt. Over the past decade, this dividend champion has managed to grow distributions at an annualized rate of 17%. Between 2008 and 2017, earnings increased from 21 cents/share to $1.70/share. The company is expected to earn $2.61/share in 2018.
The stock is attractively valued at 17.30 times forward earnings and a forward dividend yield of 1.90%.
Visa Inc. (V) operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. The company raised its quarterly dividend by 19% to 25 cents/share. This dividend achiever has managed to reward shareholders with a raise for 10 years in a row. The dividend has increased almost tenfold over the past decade – from 2.625 cents/share in 2008 to 25 cents/share in 2018. Earnings per share have also increased almost tenfold between 2008 and 2017 – from 29 cents/share and $2.80/share.The company is expected to earn $4.59/share in 2018.
The stock is overvalued at 30.50 times forward earnings and a forward dividend yield of 0.70%. I would be interested in adding to Visa on dips below $92/share, equivalent to 20 times forward earnings.
Relevant Articles:
- Your future retirement income is on sale
- My screening criteria for dividend growth stocks
- Your favorite businesses are on sale
- October 2018 Dividend Champions List
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