Sunday, December 18, 2022

Twelve Companies Rewarding Shareholders With a Raise

I am a long-term dividend growth investor. I buy companies with a long streak of annual dividend increases, at the right valuation, and I hold them for as long as they do not cut dividends. I am a very patient buy and hold investor. My goal has always been to achieve a certain level of target dividend income. I invest with the end goal in mind, which is to generate that income to pay bills in retirement, and have it grow above the rate of inflation.

I have discussed before the process I follow to come up with investment ideas. One of the ways I come up with ideas is during my monitoring process. Every week, I compile the list of dividend increases, and focus on those companies with at least a ten year history of annual dividend increases. I want to focus on companies that have managed to raise their dividends through the ups and downs of an economic cycle. This gives me a better feel that these dividends are coming from a sustainable business model, not a company that simply got lucky. I want dividends I can count on, whether we have a recession or a boom.

My monitoring process around dividend increases helps me to see how existing portfolio holdings are doing. It also helps me identify new ideas for further research.

In general, I look at the dividend increase, and compare it to the rate of dividend growth during the past five or ten years. It is helpful to see how sticky the dividend growth rate really is.

Next, I look at trends in earnings per share, in order to determine if the dividend is on solid ground. Without growth in earnings per share, there is a natural limit to future dividend increases. This step is best done when I review trends in the payout ratio as well.

I also look at valuation, but I will have to tell you that valuation is more art than science. You have to look at trends in earnings and dividends, along with the valuation metrics such as P/E ratio and dividend yield. You also have to determine if those trends could last.

During the past week, there were several companies that met the criteria as discussed above. The companies include:

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too. 

Companies listed include: AMGN, BEN, ENSG, FFMR, MAA, NWFL, O, PNR, TTC, WASH, WDFC, WEC

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