The Power of Moats

I was going through my file cabinet, and uncovered an interesting presentation from Morningstart on the Power of Economic Moats. An economic moat is a competitive advantage that allows a company to generate high returns for long periods of time. There are several sources of competitive advantage, which we would cover below.

Having an economic moat allows a business to generate high rates of return on investment over a long period of time. That allows for faster earnings growth, more predictable cashflows and generating excess cashflows too. Businesses with high moats have generated high returns on investment for long periods of time. Duration is very important.

I like the idea of looking at stocks as small pieces of a business, rather than pieces of paper to be traded.

I also like the idea of performing fundamental research,  assessing competitive advantages, taking long-term perspective and investing when valuation is right, and odds are in your favor as an investor. 

There are five source of sustainable competitive advantage.

- Intangible Assets

- Switching Costs

- Network Effect

- Cost Advantage

- Efficient Scale

Intangible Assets includes things like brands, patents and regulatory licenses. A few examples of companies with strong intangible assets listed include Johnson & Johnson, Unilever, Coca-Cola, Sanofi.

Switching costs include the ability to effectively lock in a customer into an arrangement that would make it extremely costly for them to switch. A few examples include ADP, Oracle, and Intuitive Surgical.

Network effect is when the value of a particular service increases for new and existing users as more costomers are added. A few examples listed include Mastercard, Ebay, Facebook, CME Group.

Cost advantage is when you have lower costs than your competitors for a variety of structural reason. A few examples listed include Amazon, Novo Nordisk, Shell and ABInbev.

Efficient Scale is when a market of limited size is served by a few companies, a monopoly or dupopoly of sorts.

Moats are not static. They expand or collapse.There are changes in industry dynamics, and management may do silly things that damage the moat. 

That being said moats provide a margin of safety, and could provide an advantage if you can snap a good company on sale that has with a durable advantage that would be in business for a while.

Ultimately the important thing is having a unique advantage in business, that allows that business to earn high returns on capital. The longer the duration of that advantage, the higher the possibility for earning money as an investor. If one buys it at a price that avoids overpaying for such quality business, that further increases potential for profits.

The goal of course is to assess the durability of the advantage. The products or services that have wide sustainable and durable moats around them can deliver rewards to investors. 

Long-time readers of Dividend Growth Investor are aware of the concepts of moats and the types of companies listed above. Many of them are well-known blue chip names, which have delivered good results and good returns to shareholders. That being said, you can notice some of these entities like ABInbev have had their fortunes reversed. But others have had their fortunes continuing to prosper, e.g. ADP and Mastercard. Note this presentation is from over a decade ago, and still overall holds its ground.

Nine Companies Raising Dividends Last Week

I review dividends increases every week, as part of my monitoring process. I typically focus my attention to companies that have raised dividends for at least a decade.

I like the signaling power of dividends. A company can only afford to grow a dividend for extended periods of time if it has been able to grow cashflows over that same period of time. You cannot easily grow cashflows, while also distributing more cash each year, without having some sort of a moat or competitive advantage. In other words, rising dividends are a trail of breadcumbs that signal to serious researchers that there are some good companies for review.

A long history of dividend increases is an end result of a quality business, with strong competitive advantages and strong history of generating cash flows. It is very likely that these are dependable and recurring cashflows as well, and this business enjoys a high rate of return on invested capital. The reason these businesses are able to generate so much excess cashflows is because they generate high returns on invested capital. In other words, they do not need a lot of capital to grow.

That being said, a long history of dividend increases is just the first step in the process. It merely puts a company on the map (or in my investable population). Further work is needed to screen, and evaluate companies one at a time, until a manageable list for investment at the right price is generated. Monitoring such a list is important as well, whether it's a current holding or a prospective one. Monitoring can also provide investors with lessons for further learning.

One of my monitoring processes is to evaluate companies that recently raised dividends that also have a ten year track of annual dividend increases. 

Over the past week, there were nine such companies. The companies include:

Alerus Financial Corporation (ALRS) operates as the bank holding company for Alerus Financial, National Association that provides various financial services to businesses and consumers in the United States. The company operates through three segments: Banking, Retirement and Benefit Services, and Wealth.

The company raised quarterly dividends by 5% to $0.21/share. This is the 27th consecutive annual dividend increases for this dividend champion. Over the past decade, the company has increased dividends at an annualized rate of 7.74%.

The company's earnings went from $1.26/share in 2015 to $0.84/share in 2024.

The company is expected to earn $2.19/share in 2025.

The stock sells for 9.57 times forward earnings and yields 4.04%.

Flowers Foods, Inc. (FLO) produces and markets packaged bakery food products in the United States. 

The company raised quarterly dividends by 3.13% to $0.2475/share. This is the 24th consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has increased dividends at an annualized rate of 6.95%.

The company's earnings went from $0.90/share in 2015 to $1.18/share in 2024.

The company is expected to earn $1.11/share in 2025.

The stock sells for 16.48 times forward earnings and yields 6.01%.

Lennox International Inc. (LII) designs, manufactures, and markets products for the heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally.

The company raised quarterly dividends by 13.04% to $1.30/share. This is the 16th consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has increased dividends at an annualized rate of 15.34%.

The company's earnings went from $4.16/share in 2015 to $22.67/share in 2024.

The company is expected to earn $22.86/share in 2025.

The stock sells for 25.14 times forward earnings and yields 0.92%.

Logitech International S.A. (LOGI) designs, manufactures, and markets software-enabled hardware solutions that connect people to working, creating, gaming, and streaming worldwide. 

The company raised the annual dividend 8.62% to 1.26 CHF/share. 

This is the 12th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the dividend has increased at an annualized rate of 17.77%/year.

The company's earnings went from $0.73/share in 2015 to $4.17/share in 2024.

The company is expected to earn $4.47/share in 2025.

The stock sells for 19.38 times forward earnings and yields 1.58%.

LyondellBasell Industries N.V. (LYB) operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. The company operates in six segments: Olefins and Polyolefins—Americas; Olefins and Polyolefins—Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.

The company raised quarterly dividends by 2.24% to $1.37/share. This is the 15th consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has increased dividends at an annualized rate of 6.92%.

The company's earnings went from $9.61/share in 2015 to $4.17/share in 2024.

The company is expected to earn $3.83/share in 2025.

The stock sells for 14.72 times forward earnings and yields 9.76%.

Medtronic plc (MDT) develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide.

The company raised quarterly dividends by 1.43% to $0.71/share. This is the 48th consecutive annual dividend increase for this dividend aristocrat. Over the past decade, the company has increased dividends at an annualized rate of 9.01%.

The company's earnings went from $10.51/share in 2015 to $28.39/share in 2024.

The company is expected to earn $25.20/share in 2025.

The stock sells for 18.77 times forward earnings and yields 1.96%.

Northrop Grumman Corporation (NOC) operates as an aerospace and defense technology company in the United States, the Asia/Pacific, Europe, and internationally. 

The company raised quarterly dividends by 12.14% to $2.31/share. This is the 22nd consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has increased dividends at an annualized rate of 11.50%.

The company's earnings went from $2.51/share in 2015 to $3.63/share in 2024.

The company is expected to earn $5.64/share in 2025.

The stock sells for 14.36 times forward earnings and yields 3.51%.

Universal Corporation (UVV) engages in sourcing, processing, and supplying leaf tobacco and plant-based ingredients worldwide. It operates through two segments, Tobacco Operations, and Ingredients Operations.

The company raised quarterly dividends by 1.23% to $0.82/share. This is the 55th consecutive annual dividend increases for this dividend king. Over the past decade, the company has increased dividends at an annualized rate of 4.67%.

The company's earnings went from $4.33/share in 2015 to $4.81/share in 2024.

The company is expected to earn $5.02/share in 2025.

The stock sells for 11.59 times forward earnings and yields 5.53%.

Unum Group (UNM) provides financial protection benefit solutions in the United States, the United Kingdom, and Poland. It operates through Unum US, Unum International, Colonial Life, and Closed Block segment.

The company raised quarterly dividends by 9.52% to $0.46/share. this is the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has increased dividends at an annualized rate of 9.74%.

The company's earnings went from $3.51/share in 2015 to $9.49/share in 2024.

The company is expected to earn $8.95/share in 2025.

The stock sells for 8.90 times forward earnings and yields 2.30%.

I like to review the most recent dividend increase against the history from the last decade. It is helpful to evaluate the trends in financials, such as earnings per share in order to gain an understanding whether dividend growth is based on solid fundamentals. I also like to review the current valuation. It tend to gather all that information to then think through the trade-offs between dividend yield and dividend growth, and how cyclical the business is.

Relevant Articles:

- Nine Dividend Growth Companies Confident In Their Prospects

- 14 Companies Showering Shareholders With More Cash

- Eleven Dividend Growth Companies Raising Dividends Last Week

- Four Dividend Increases In a Time of Tariffs

Bill Gates Could've Been The Worlds First Trillionaire

Bill Gates is one of the founders of software giant Microsoft (MSFT). 

Before Microsoft went public in 1986, he held 11,222,000 shares in the company. He owned 49.20% of it.

He sold a portion of his stake at the IPO, and has been regularly and consistently been reducing his stake in Microsoft for the past 38 years.

This is how the stock price did since the IPO:

The company initiated a dividend in 2003, and has been increasing it annually since 2004.

Many of the funds have been allocated through his private family office, and have been diversified away.

Much of the funds have also found their way to his charitable arm, the Bill and Melinda Gates Foundation, which has worked on eradicating a variety of issues around the world (e.g. polio).

The money has done a lot of good.

It's still fascinating to think about how much this stake would have been worth, had he not sold anything, and kept all shares. For the sake of simplicity, I would assume that all dividends received were not reinvested. Otherwise, the numbers get even higher, but messier too. 

While his ownership of the float would have likely remained around 50%, after accounting for issuance of stock options and restricted stock units to employees, with dividends reinvested he could've been in a hypotetical situation where his ownership is more than 100%. Which of course is impossible.

You can view the trend in shares outstanding for Microsoft between 1990 and 2025 here (adjusted for stock splits):

The stock has gone through nine stock splits since its IPO in 1986. 

This means that each share from 1986 would have turned to 288 shares today after all the splits.

This also means that his 11,222,000 shares from 1986 would have turned to 3,231,936,000 shares today.

At the current share price of $455/share, this translates into a net worth of almost $1.5 trillion dollars.

This means that Bill Gates would have been the world's first trillionaire.

He would have also been richer than the richest people in the world today.

These are the four richest people in the world today, according to Forbes:

Gates could have been richer than all four combined.

Instead, he's worth "only" $115 billion today, and is number 12 on the list of the world's richest people.

Of course, this is mostly a discussion with a lot of hindsight bias.

Back in 1986, Bill Gates did not really know how the next 38 years would unfold. It could have been very likely that Microsoft did not survive or if it did, it did not deliver the amazing returns it did.

In general, it makes sense to diversify your investments in order to protect yourself from unknown risks. It's also a good idea to give back and help those in need. 

My take-away from this story is that I should keep my winners for as long as possible, and not diworsify away any potential. While I start my strategy with a diversified exposure to a large group of entities that fit my criteria, I do believe that the key to building long-term wealth is to let winners run. 

When auditing my investment decisions, I realized that selling too early was one of my biggest mistakes.

In other words, you want to water the flowers and cut the weeds. If you sell out those future wealth builders too early, you may not make a lot of money in your strategy overall. Since you do not really know which of your portfolio holdings will be the best performing ones over the next 40 years, it makes sense to avoid too much turnover and selling them prematurely.

Higher turnover is associated with a higher potential for making a mistake, and increasing costs. 

That being said, it's also good to have some diversification as well. After all, things could have gone wrong for his net worth, if Microsoft had not performed as it did. The company had to work hard to endure the changes in the business and tech world for decades, and thrive as well. But as we all know, different paths could have led to different outcomes as well.

How Earl Crawley Built a $500,000 Dividend Portfolio on Minimum Wage

Today, I wanted to share the story of Earl Crawley, a parking lot attendant who accumulated a portfolio of dividend stocks worth $500,000, despite the fact that he never made more than $20,000/year.

This story is very inspirational, and teaches us a lot of lessons that are applicable to all of us, despite the cards we are dealt in life. It reminds me a lot of the story of Ronald Read, the Vermont Gas Station Attendant, who built a dividend portfolio worth $8 million.

Mr. Earl's Story

Earl Crawley was a 69 year old Baltimore parking lot attendant, when I first heard about him in 2008.

He had worked as a parking lot attendant for a bank for the previous 44 years. He had never made more than $20,000/year. Despite all of that, he had a dividend portfolio worth $500,000 and a fully paid off home.

Earl had a difficult childhood. When he was 4, he and his three sisters and brother were placed in St. Elizabeth's Orphanage on Argonne Drive after his mother contracted tuberculosis. It took nearly three years for his mother to get well and reunite the family. They rented an apartment on Saratoga Street near Lexington Market.

Earl had started working at the age of 13, but his mother took most of his income. He had dyslexia, which is why there were not many opportunities for him beyond some manual labor jobs such as mowing lawns, cleaning houses, being a parking lot attendant. He realized he had to save as much money as he can to overcome life's challenges.

After he got married, and had three children, he supported his family on $80/week in the 1960s. Money was tight, but he lived within his means by keeping costs low and working several jobs to make more income. Despite all obstacles, his frugal attitude helped him to save and invest. He had learned this resourcefulness from his mother, who was able to make ends meet with a limited income from low wage jobs.

How did this parking lot attendant manage to learn about bonds, dividend reinvestment plans and investing in the stock market?

One day, a well-meaning co-worker took Crawley aside and put a bug in his ear: You have a limited education. You better get some money because you won't go far here. That co-worker, became a friend and mentor, spurring the youthful handyman to learn more about the stock market.

His parking lot was close to a lot of financial institutions. Earl kept asking questions, and kept learning, picking the brain of anyone who engaged. Earl listened to bankers, lawyers, brokers, believed in the power of compounding & stocks for the long run.

Mr Earl's Investing Journey

His ultimate goal was to let the money work for him so he didn't have to.

Earl started with savings stamps, savings bonds and later graduated to investing regularly in a mutual fund. He started investing consistently $25/month in a mutual fund for 15 years.

By the late 1970s, his net worth reached $25,000.

By 1981 he started investing directly in blue chip, dividend paying stocks like IBM, Coca-Cola, Caterpillar. He bought a share or two, but kept buying consistently over time. He kept reinvesting his dividends, which increased his shares and dividend income.

By 2007 he had a portfolio worth $500,000, a fully paid off house and no debt

I would imagine that his portfolio generated between $15,000 and $20,000 in annual dividend income

At his income level that was probably tax-free or tax-deferred. That’s because his assets were split between a company 401 (k), an Individual Retirement Account and a taxable account. If you are under a certain income threshold, most of your assets would be non-taxable.

Mr Earl's Portfolio Holdings

Based on information I found about him, his portfolio seemed diversified in blue chip companies that paid a dividend. Examples include:

Coca-Cola (KO)

Caterpillar (CAT)

Bank of America (BAC)

IBM (IBM)

Colgate-Palmolive (CL)

Lockheed Martin (LMT)

Verizon (VZ)

AT&T (T)

Exxon-Mobil (XOM)

He couldn't afford to lose money in the stock market. This is why he focused on stable blue chip companies, which paid a dividend.

He has stated that when he first started out, he had to be conservative and take his time because he couldn't afford to lose money. He looks for companies with stability that pay dividends. While he does use his broker, many times he'll go where my spirit leads him.

He also held mutual funds in his IRA and 401 (k). He did have a good amount of employer stock in his 401 (k) too, which was accumulated through regular payroll deductions.

Earl is also paying it forward, by donating shares to others, teaching them about dividend reinvestment and the power of compounding. He shares his lessons with other members of his church, and starting an investment club.

This knowledge would hopefully compound, make his community better educated and hopefully wealthier. This knowledge would pay dividends for generations to come, hopefully breaking the cycle of poverty for many of his friends.

Seven Wealth Building Lessons from Mr. Earl

After reviewing some interviews with Mr Earl, and reading some articles about him, I have come with a list of several lessons that helped him accumulate his nest egg.

1. Live within your means

2. Try to always save some money

3. Invest regularly on a consistent schedule

4. Invest in blue-chip dividend paying stocks

5. Reinvest those dividends

6. Let your money work hard for you

7. Keep learning

I find stories like that very inspirational. It shows me that anyone can acquire wealth if they live within their means, save and invest prudently, and take advantage of the power of compounding over long periods of time.

One of the largest misconceptions people have is that they need to earn a high income, in order to save. The important thing is to be able to live within your means, and manage your income and your expenses at the same time. The different between income and expenses is the savings rate, which should be then invested in assets such as equities.  While earning a high income can help, too often we see highly compensated employees succumb to lifestyle inflation and spend their raises, and then some, on an expensive lifestyle. While earning a low income may seem like an obstacle to building wealth, it may teach folks to be resourceful and live a simpler life withot many wants. This can lead to a cheap lifestyle, that can help accumulate wealth. This is a counter-intuitive idea to many folks today. Yet, people like Mr Earl and Ronald Read, the millionaire gas station attendant, are living proof that you do not need a high income to accumulate a sizeable nest egg.

I believe that if there is a will, there is a way.

Resources about Mr Earl Crawley

I enjoyed viewing the following video of Mr. Earl from Moneytrack:

You can also learn more from this book about him, titled: Nickel and Dime Your Way To Wealth: Wealth Building On Any Income

There are a few articles I read about him, which were very helpful in learning about Mr. Earl Crawley's journey:

- Stocking up

- Investing With Nickels and Dimes

- The unlikely investor

Nine Dividend Growth Companies Confident In Their Prospects

Increasing the dividend is a sign of confidence in the business.

I study dividend increases every week, and focus my reviews on the companies that have managed to raise dividends for at least a decade. You can view a list of the nine companies that raised dividends last week  here:

This of course is just one step of my process. I like to regularly screen the dividend growth investment population for quality companies selling at a discount. I review the list of dividend increases as another way to look at the population, and monitor existing holdings. It's also a step that could potentially help identify good companies early.

When a company has raised dividends, it simply ends up on my desk for a quick review, before I decide what to do with it. My review could either determine that fundamentals are not attractive, which means I discard it. If my review determines that fundamentals are attractive, and could potentially continue delivering on them, I would review valuation. If valuation is too high, I would put it on a list of candidates that should be considered if their price declines to a required minimum amount. If valuation is adequate, I would compare this investment to others that fit my entry criteria, and determine if I should buy it or something else.

Another factor in my consideration includes whether I have ownership and how concentrated that ownership is in my portfolio.

As you can see, there are lots of different trade-offs involved.

But at a minimum, I look fundmanetally for:

1. A long history of annual dividend increases

2. Earnings per share growth over the past decade

3. Adequate dividend payout ratio

4. Dividend increases above inflation, including most recent dividend raise

5. Attractive valuation. Note that valuation is part art, part science, as it considers trade-offs between dividend yield and dividend growth, other investment opportunities, interest rates, moats, defensibility of earnings, and how cyclical the business model is.

Relevant Articles:

- Eleven Dividend Growth Companies Raising Dividends Last Week

- 14 Dividend Growth Stocks Raising Dividends Last Week

- Nine Companies Raising Dividends Last Week

- Eight Dividend Growth Stocks Raising Distributions Last Week

Audit your investment decisions

 One of the best things you can do as an investor is to audit your investment decisions.

This is an underrated factor that can help improve as an investor.

Very few investment books ever mention this crucial aspect of investment. But all successful investors practice it.

Reviewing past decisions is helpful, because it can help you identify recurring patterns, misses and opportunities. By identifying problems and opportunities, and addressing them, the investor can improve over time.

It’s important to take a step back, and try to think clearly about what you are missing. It’s hard to take a look at yourself, and see issues. Growth is painful, but worth it.

Of course, in order to have something to evaluate, you have to have those decision points in handy.

In my case, I have a process I follow. But I also have a lot of write-ups, behind each decision.

I also have transaction histories as well. I also have write-ups and population data.

After doing some reviews and analysis over the years, I have found a few interesting tidbits.

Notably, when it comes to stock analyses, I’ve noticed that the best opportunities basically jumped at me. The data was so convincing, that it just spoke to me. However, if I had to spend a lot of time explaining away why an investment is great, despite the data, I was mostly justifying an average decision.

In addition, I had found that selling has been one of the worst decisions I could make. Early on, I was pretty active in my portfolio. I would buy a security at a good value, and then sell it at what I believed to be a high price. I would then re-deploy funds in what looked like a cheaper security. It’s also likely that I was subconsciously engaged in yield chasing as well. What ended up happening is that that “expensive company” I sold turned out to do very well, growing earnings, dividends and intrinsic value. The cheap company I bought turned out just okay, but nothing spectacular. Even worse, I ended up paying taxes on gains in the taxable account. I learned that once I buy a good quality company, I should pretty much sit tight on it, and do nothing. 

This has further been reinforced by studying my mistakes. A lot of times, compounding is not a straight line upwards. There could be times where a security may be going through some temporary bumps/slumps/noise. This is when everyone gets discouraged. Notably by share price going nowhere, which is when media articles start popping up saying that the stock is not working. That’s noise, but it does wear you out if you pay attention to it. It’s even worse for someone with followers online, because everyone asks you about it. It’s death by a thousand cuts. I have learned to ignore and just stick to it. It’s because long-term investing is simple, but not easy. But in most cases, these consolidation phases tend to wear out the weak hands that never make it in investing. By the time they capitulate, the stock is hot again and “works”. Selling because you are impatient is a mistake. 

In general, selling a stock has been a mistake for me. It has been compounded by the fact that the company I replaced it with tends to do worse than the company I sold. It happens all the time, at least 40% - 60% of the time. But the magnitude of missed economic opportunity is larger than the opportunity I replaced it with.

Being patient with a security provides the maximum opportunity to let compounding do the heavy lifting for me. That doesn’t mean sticking my head in the sand. But it also doesn’t mean just getting scared easily either. It also doesn’t mean never selling – but being extremely careful about why you sell.

These days I rarely sell. The main reasons are a dividend cut and because a company has been acquired. Any other reason to sell has largely been a mistake, on average of course. I would encourage you to review your transaction history, and determine if selling has been a mistake over your investing career.

14 Companies Showering Shareholders With More Cash

 As part of my monitoring process, I review the list of dividend increases every week. I usually focus on companies that have managed to boost dividends to shareholders for at least a decade (with one exception this week). 

There were 36 companies that raised dividends in the US last week. Fourteen of them have increased dividends for at least ten years in a row.

The companies that raised their dividends to shareholders are listed below:

This list is not a recommendation to buy or sell stocks. It is simply a list of companies that raised dividends last week. The companies listed have managed to grow dividends for at least ten years in a row.

The next step in the process would be to review trends in earnings per share, in order to determine if the dividend growth is on strong ground. Rising earnings per share provide the fuel behind future dividend increases.

This should be followed by reviewing the trends in dividend payout ratios, in order to check the health of dividend payments. A rising payout ratio over time shows that future dividend growth may be in jeopardy. There is a natural limit to dividends increasing if earnings are stagnant or if dividends grow faster than earnings.

Obtaining an understanding behind the company’s business is helpful, in order to determine how defensible the dividend will be during the next recession. Certain companies are more immune to any downside, while others follow very closely the rise and fall in the economic cycle.

Of course, valuation is important, but it is more art than science. P/E ratios are not created equal. A stock with a P/E of 10 may turn out to be more expensive than a stock with a P/E of 30, if the latter is growing earnings and the former isn’t. Plus, the low P/E stock may be in a cyclical industry whose earnings will decline during the next recession, increasing the odds of a dividend cut. The high P/E company may be in an industry where earnings are somewhat recession resistant, which means that the likelihood of dividend cuts during the next recession is lower.

Relevant Articles:

- Eleven Dividend Growth Companies Raising Dividends Last Week

- 14 Dividend Growth Stocks Raising Dividends Last Week

- Nine Companies Raising Dividends Last Week

- Eight Dividend Growth Stocks Raising Distributions Last Week

14 Dividend Growth Stocks Raising Dividends Last Week

I review the list of dividend increases each week, as part of my monitoring process. There were 27 companies that increased dividends over the past week.

I reviewed the list and included the companies that have both raised dividends last week and have managed to raise dividends for at least ten years in a row. There were 14 companies that fit this simple screen:

This list is not a recommendation to buy or sell stocks. It is simply a list of companies that raised dividends last week. The companies listed have managed to grow dividends for at least ten years in a row.

The next step in the process would be to review trends in earnings per share, in order to determine if the dividend growth is on strong ground. Rising earnings per share provide the fuel behind future dividend increases.

This should be followed by reviewing the trends in dividend payout ratios, in order to check the health of dividend payments. A rising payout ratio over time shows that future dividend growth may be in jeopardy. There is a natural limit to dividends increasing if earnings are stagnant or if dividends grow faster than earnings.

Obtaining an understanding behind the company’s business is helpful, in order to determine how defensible the dividend will be during the next recession. Certain companies are more immune to any downside, while others follow very closely the rise and fall in the economic cycle.

Of course, valuation is important, but it is more art than science. P/E ratios are not created equal. A stock with a P/E of 10 may turn out to be more expensive than a stock with a P/E of 30, if the latter is growing earnings and the former isn’t. Plus, the low P/E stock may be in a cyclical industry whose earnings will decline during the next recession, increasing the odds of a dividend cut. The high P/E company may be in an industry where earnings are somewhat recession resistant, which means that the likelihood of dividend cuts during the next recession is lower.

Relevant Articles:

- Eleven Dividend Growth Companies Raising Dividends Last Week

- Nine Companies Raising Dividends Last Week

- Four Dividend Increases In a Time of Tariffs

- Two Recent Dividend Increases and Five Future Dividend Increases

Dividend Strategy with Quality Yields – The Dow Jones Dividend 100 Indices

I found an interesting paper from S&P Dow Jones on the Dow Jones Dividend 100 Indices. This is the index used behind the popular dividend ETF Schwab U.S. Dividend Equity ETF (SCHD).

I've previously discussed the Schwab US Dividend Equity ETF here. 

But let's dive into the paper:

They discuss the overall differentiating factors behind the success of these indices

- Sustainable dividends with financial quality

- Dividend growth against future rising rates

- Investability

They shared the construction methodology behind the Dow Jones 100 Dividend Indices

It's a good process to learn from, whether you are a DIY or ETF investor

S&P found that dividend stocks generate strong returns from dividends and capital gains

They calculated total returns between June 2001 and June 2023 for the Dow Jones U.S. Dividend 100 Index

They found that the dividend index generated a total return of 11.70% annualized, beating the 10.20% for the total market index

Why has that Dividend Index done well?

It's due to its focus on quality, financial stability, which makes it easier to endure tough economic times and thrive during the good times

Dividend Strategies tend to shine during major historical drawdowns

There are several of those listed since 1999:

They also listed the sector weightings:

Contrary to popular beliefs, this strategy has fair allocation accross multiple sectors. It's not the "utilities and financials only"

This is the part that triggers me - I dislike the high turnover of this index.

In my opinion they are losing out on returns by selling their companies too quickly

Next, they showed the spread in dividend yields between US and International overall. For the broader US market, this is due to the increased use of share buybacks in the US vs abroad

I found this chart on sector trends and characteristics informative

You can read the whole paper here:

Dividend Strategy with Quality Yields – The Dow Jones Dividend 100 Indices