Monday, May 4, 2020

Two Dividend Growth Stocks Rewarding Shareholders With A Raise

I review the list of dividend increases as part of my monitoring process. I find it helpful to evaluate companies with a long streak of annual dividend increases of at least ten years. The process of checking the list of dividend increases every week helps me identify hidden dividend gems for further research. This process also helps me to review existing holdings, and update my research file for them. This is helpful whenever I have money to invest, since a recent dividend action is one of the inputs I use to establish whether I want to buy a stock.

During the past week, there were several companies that raised dividends to shareholders. I am mentioning the ones with at least a ten year streak of annual dividend increases in the article below:

International Business Machines Corporation (IBM) operates as an integrated solutions and services company worldwide.

The company hiked its quarterly dividend by a penny to $1.63/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend aristocrat. During the past decade, Big Blue has managed to hike distributions at an annualized rate of 11.60%. The rate of increases is going to decelerate due to lack of earnings growth and revenue growth.

Between 2010 and 2019, earnings per share went from $11.52 to $10.56. The estimates for 2020 point to $11.23/share, but those should be taken with a grain of salt, especially this year.

The stock looks cheap at 10.85 times forward earnings, yields 5.35% and has a forward payout ratio of 58%. Without growth in earnings per share, future dividend growth will be limited to expanding the payout ratio. As a result, I do not view IBM as a buy today.

American Water Works Company, Inc.(AWK), provides water and wastewater services in the United States.

The company raised its quarterly dividend by 10% to 55 cents/share. This marked the 12th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to increase distributions at an annualized rate of 9.10%.

The growth in dividends was supported by strong growth in earnings per share. The company earned $1.53/share in 2010 and managed to continue growing those earnings to $3.43/share in 2019.

The company is expected to generate $3.85/share in 2020. Again, take forward earnings estimates for 2020 with a huge grain of salt, although in the case of a water utility they may be closer than for a company like IBM.

The stock looks overvalued at 31 times forward earnings, yields 1.85%, and has a forward payout ratio of 57%. It may be worth it for me to take a look on dips below $77/share.

Relevant Articles:

Dividend Achievers Offer Income Growth and Capital Appreciation Potential
- The Future for Dividend Investors
Stagnant earnings create a risky environment for dividend investors
What Attracted Warren Buffett to IBM?
Seven Dividend Growth Stocks In The News

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