Carlisle Companies (CSL) Dividend Stock Analysis

Carlisle Companies Incorporated (CSL) operates as a diversified manufacturer of engineered products in the United States, Europe, Asia, Canada, Mexico, the Middle East, Africa, and internationally.

The company is a dividend champion, which has increased dividends to shareholders for 46 years in a row.  Over the past decade the company has managed to grow dividends at an annualized rate of 13%/year.

 

The last dividend increase was in August 2022, when the Board of Directors approved a 38.90% hike in the quarterly distributions to 75 cents/share.

Chris Koch, Chair, President and Chief Executive Officer, said “As part of our legacy of being superior capital allocators, we are very pleased to announce a dividend increase for the 46th consecutive year. This 39% increase is our largest in the past 25 years, and reflects our strong, sustainable financial position, and confidence in continued growth of Carlisle’s earnings power. Our commitment to returning capital to shareholders is made possible by the support of Carlisle’s dedicated employees, who embrace our culture of continuous improvement and maintain a steadfast commitment to creating value for all stakeholders.”

The company has managed to boost earnings from $3.57/share in 2012 to $17.58/share in 2022. The company is expected to earn $18.05/share in 2023. We have to take forward guidance with a grain of salt, given the state of affairs in the world economy today.

 

Their Vision 2025 strategy is an interesting program. In Vision 2025, the company targets doubling annual revenues to $8 billion, expanding operating margins to 20%, and generating 15% ROIC. This would be achieved through 5% organic growth, and reducing costs by 1% - 2% of sales, by using efficiencies. The company is also working to make acquisitions and review existing divisions for further optimization. Carlisle expected to invest in M&A through 2025. The company is working to develop its employees as well, and spend money on capital expenditures, share buybacks and dividends to reward long-term shareholders.  Carlisle Companies is trying to reach $15/share by 2025. They expect revenues of 8 billion by 2025.

I like these slides on the Vision 2025 strategy:

https://s22.q4cdn.com/386734942/files/doc_presentations/2020/Vision-2025-CSL-Investor-Presentation_Updated-Feb7.pdf

Also check out the Vision 2025 Website

The company operates in these major segments: 

Construction materials accounted for 80% of 2021 revenues. Manufactures EPDM, TPO, and PVC roofing systems, as well as energy-efficient rigid foam insulations panels, spray polyurethane foam, and metal roofing products. Key end markets served include US and EU Non-residential and Building Envelope.

The risk factor is that a slowdown in construction amidst rising interest rates could slow down growth, leading to a decrease in profits. The impact of a slowing construction may not be seen for a few quarters to an year.

Interconnect Technologies accounted for 14% of revenues. Designs and manufactures high-performance wire, cable, connectors, contacts, and cable assemblies for transfer of power and data. Key markets served include Commercial Aerospace, Medical Technologies and General Industrial.

Fluid Technologies accounted 5% of revenues. Manufactures industrial finishing equipment for spraying, pumping, mixing, and curing of protective coatings for industrial applications. Key markets served include Transportation, General Industrial and Automotive.

The company has been active on the share repurchase front over the past 7 years. Prior to that, shares increased, due to acquisitions.

 

The company’s dividend is well covered from earnings. It has managed a conservative payout ratio that has largely remained below 30%.

 

Right now, the company looks fairly priced at 12 times forward earnings and yields 1.40%. 

Union Pacific (UNP) Dividend Stock Analysis

Union Pacific Corporation (UNP), through its subsidiary, Union Pacific Railroad Company, operates railroads in the United States. Union Pacific Corporation is a dividend achiever, which has raised dividends for 16 years in a row.

The most recent dividend increase was in May 2022, when the Board of Directors approved a 10.17% increase in the quarterly dividend to $1.30/share.

The company’s peers include CSX Corporation (CSX), Norfolk Southern Corporation (NSC), and Burlington Northern Santa Fe which is part of Berkshire Hathaway (BRK/B).

Over the past decade this dividend growth stock has delivered an annualized total return of 14.94% to its shareholders. Future returns will likely be much lower, and will be dependent on growth in earnings and starting dividend yields obtained by shareholders. Investors should also not forget that the transportation sector is exposed to the cyclical nature of the economy, and would follow its short-term cycles pretty well.

The company has managed to deliver a 11.40% average increase in annual EPS over the past decade. Union Pacific is expected to earn $11.11 per share in 2022 and $12.74 per share in 2023. In comparison, the company earned $9.95/share in 2014. 

Railroads are an oligopoly in the US, as 90% of revenues are generated by BNSF, Union Pacific, Norfolk Southern and CSX. The first two operate largely on the west coast, while the last two operate largely on the east coast. Railroads compete for customers, but also share assets as well. They compete with trucks, pipelines, ships and aircraft for hauling goods. Trucking provides more flexibility in transporting goods, though they are more expensive. It makes sense to transport goods on long distances using a combination of rail and other modes of transport for maximum cost savings when moving goods.

Long-term growth will be driven by the growth in US economic activity. When economic activity improves over time, this would translate into more goods being shipped in the country.

The railroad's best prospects are long-term. As Warren Buffett put it, an investment in railroads is an all-in wager on the economic future of the United States. Over time, the movement of goods in the United States will increase, and railroads like BNSF or Union Pacific should get its full share of the gain. Railroads move goods across longer distances in a much more efficient way that long-haul trucks. This provides railroads a cost advantage.

Today, the United States has half the usable track it had in 1970, though companies like BNSF and Union Pacific are hauling much more freight than they did back then, and the American Association of Railroads estimates that freight loads will nearly double by 2035. That congestion, which is a signal of demand, means opportunity for railroads to improve existing tracks and add new ones, and boost sales.

The economic moats around railroads are the billions of dollars it costs to build them and the fact that the rights of way they need are all but impossible to obtain today. Therefore, it is unlikely that a new railroad will be created, though other modes of transportation could chip away market share. However, given the fact that it costs 3 – 4 times lower to transport goods through a railroad than truck, railways have inherent cost advantage. This cost advantage could also allow railroads to raise prices, and still remain competitive. Railroads have some geographic advantage as well.

Furthermore, rail companies can increase profits by improving productivity. For example, using smart systems to optimize speed depending on terrain could generate significant fuel savings over time. Reducing the amount of time railcars sit idle, could also improve profitability (since using those assets more effectively reduces the need to buy too many railcars to begin with). Raising the length of trains could further boost productivity.

Most of its employees (85%) are unionized, which could create short-term disruptions from time to time, as contracts are renegotiated.

Union Pacific operates the longest network of railroad track in the US, with over 32,000 miles. Freight revenues are derived by three segments:

Bulk – 33% of revenues. Segment includes transporting grain and grain products, fertilizer, food and coal renewables. 

Industrial – 36% of revenues. Segment includes Industrial chemicals & plastics, metals & minerals, Forest products, energy & specialized markets.

Premium – 31% of revenues. Segment includes Automotive and Intermodal.

Earnings per share have also been aided by share buybacks. The number of shares outstanding has decreased from 980 million in 2011 to 655 million by 2021.

The annual dividend payment has increased by 16.10% per year over the past decade, which is higher than the growth in EPS. Future rates of growth in dividends will be limited to the rate of growth in earnings per share.

A 16% growth in distributions translates into the dividend payment doubling almost every four and a half years on average. If we check the dividend history, going as far back as 1998, we could see that Union Pacific has managed to double dividends almost every five years on average. The item to add however was that in 1998 the company did cut its dividends by more than 50%, and kept them unchanged until 2002. Therefore, while the dividend is likely sustainable, this is a cyclical company which is more likely to cut distributions than your typical consumer staples or healthcare dividend stock.

In the past decade, the dividend payout ratio has increased from 29% in 2011 to 43% in 2021. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

 

Currently, Union Pacific is attractively valued at 16.70 times forward earnings, and yields 2.68%. 

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Dividend Stock Analysis of Kroger (KR)

The Kroger Co. (KR) operates as a retailer in the United States. The company operates supermarkets, multi-department stores, marketplace stores, and price impact warehouse stores. 

Kroger is a dividend achiever, which recently hiked quarterly dividends by 23.80% to 26 cents/share. This marked the 16th consecutive year of annual dividend increases for the company.

Warren Buffett has also been slowly building up a position in Kroger.

During the past decade, Kroger has managed to grow dividends at an annualized rate of 13.80%.

Kroger managed to grow earnings per share from 95 cents/share in 2009 to $2.17/share in 2022. The 2018 numbers are adjusted to exclude the gain on sale of Kroger’s convenience store business. The company is expected to generate $3.91/share in 2023 and $4.04/share in 2024.

Last year was a nice bump in earnings, given the fact that earnings per share had gone nowhere since 2015. That was due to investments in the company’s business going forward. It appears that earnings went lower in 2021 as fewer consumers stock up on goods like they did at the beginning of the pandemic.

Kroger's financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its cash flow to achieve these goals.

The grocery business is highly competitive, with Kroger competing against the likes of Wal-Mart and Target, as well as mom and pop grocery stores, as well as the likes of Amazon. The company needs to continuously invest in stores, drive efficient operations, new products and innovation ( such as online, and delivery/pick up). Kroger does have the scale of operations to effectively compete, and also has attractive store locations. This allows it to be able to do online purchase and pick up at 57% of its stores and home delivery for 91% of customers. Back in 2018, Kroger invested in Ocado, which is its exclusive grocery delivery partner in the US. Ocado delivers groceries in Europe. Kroger has also made investments in new warehouses, store optimization, expanding its own private label brands and digital, in an effort to drive long-term sales growth. Same store sales growth and cost reductions are the drivers that will propel earnings per share growth over time.

Kroger is also competing by offering a large variety of private label brands that it owns and manufactures internally. This allows it to generate very good profit margins on these items relative to branded products.

Kroger also competes by including pharmacies in order three-quarters of its stores and a gas station in over half of its locations. Customers who fill in a prescription by getting in the store are also likely to make another purchase or two. The same goes for customers who would appreciate the convenience of shopping for gas, filling prescriptions and doing their grocery shopping.

Kroger is also planning to develop alternative revenue streams using the data it collects on shoppers, targeting personal finance products and media ad revenues. The company collects a lot of date on customers that shop there, which can also be used as a tool to provide a more personalized shopping experience. Another alternative revenue stream is the Home Chef meal delivery service, which provides ingredients for meals in 48 states in the United States. Kroger acquired Home Chef in 2018, and the meal kits are available at Kroger locations, including a few Walgreen’s stores.

Kroger has rewarded shareholders handsomely with dividends and share buybacks. Between 2009 and 2022, the number of shares outstanding has gone down from 1.31 billion shares to 754 million shares. This means that shareholders from 2009, who stayed invested in Kroger, increased their ownership in the company by two-thirds without doing anything.

The dividend payout ratio increased from 17.90% in 2009 to 36% in 2022.  A lower payout ratio provides an adequate margin of safety in the dividend payment, which can provide protection against short-term turbulence in earnings per share. There is room for increase in the payout ratio from here. Future dividend growth can be helped by a gradual increase in the payout ratio. If Kroger is unable to jump start earnings growth however, there will be a natural limit to further dividend growth. I would get worried if earnings are not growing, but dividends are, and the payout ratio exceeds 60%. 

Currently the stock is attractively valued at 12.18 times forward earnings and offer an attractive dividend yield of 1.76%.

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Air Products and Chemicals, Inc. (APD) Dividend Stock Analysis

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. This dividend aristocrat has paid distributions since 1954 and increased dividends on its common stock for 40 years in a row.

The company's last dividend increase was in February 2022 when the Board of Directors approved an 8.50% increase to 77 cents/share. The company's largest competitors include Linde (LIN) and Air Liquide (AIQUY).

Over the past decade this dividend growth stock has delivered an annualized total return of 13.50% to its shareholders.

The company has managed grow earnings from $4.66/share in 2012 to $9.12/share in 2021. Analysts expect Air Products and Chemicals to earn $10.29 per share in 2022 and $11.62 per share in 2023.

 

Air Products and Chemicals is expected to post growth in sales, due to strong demand for industrial gases in rapidly growing economies in Asia. Long term growth will be driven by acquisitions, expansion into rapidly growing markets in South America and Asia. Recent acquisitions and projects in Saudi Arabia could drive future earnings growth.

Air Products and Chemicals streamlines operations and tries to manage costs strategically. In the past, the company has been shedding unprofitable operations, and focusing on cost cutting initiatives, in order to boost the bottom line.

In order to grow, the company should focus on increasing volumes in the merchant segment, plus executing new projects on time and budged in the tonnage segment, while focusing on plan efficiency improvements. In addition, focusing on major customers in the electronics and performance materials segment, while also introducing new offerings that could increase margins and returns. Other important opportunities include focusing on the pricing and the right mix of productivity and cost reductions, in order to hit profitability and margin goals set for itself.

The company operates under long-term customer supply contracts, particularly in the gases on-site business. These contracts principally have initial contract terms of 15 to 20 years. There are also long-term customer supply contracts associated with the tonnage gases business within the Electronics and Performance Materials segment. These contracts principally have initial terms of 10 to 15 years. Additionally, they company has several customer supply contracts within the Equipment and Energy segment with contract terms that are primarily 5 to 10 years. Under those contracts, the Company has built a facility on land owned by the customer, and is essentially a de-facto monopoly in the specific geographic area for that customer.

The annual dividend payment has increased by 11.10% per year over the past decade.

 

The dividend payout ratio increased from 54% in 2012 to 75% in 2015, before gradually decreasing back to 64% in 2021. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

 

The number of shares outstanding has been growing at a snail pace. In general, you want to see shares outstanding flat or decreasing.

 

The stock is selling for 25.45 times forward earnings and yields 2.48%.

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A. O. Smith Corporation (AOS) Dividend Stock Analysis

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 is a dividend aristocrat with a 28-year history of annual dividend increases. 

The last dividend increase occurred in early October 2021, when the board of directors approved a 7.70% hike in the quarterly dividend to 26 cents/share. 

Over the past decade, this dividend aristocrat has managed to grow distributions at an annual rate of 21.50%/year. I expect reasonably high dividend growth over time, which may even exceed earnings per share growth for the next decade.

Adjusted earnings per share have experienced a steep uphill climb over the past decade, rising from 54 cents/share in 2011 to $3.02/share in 2021. The company is expected to earn $3.55/share in 2022.

A.O. Smith is a manufacturer of residential and commercial water heaters, boilers and water treatment products. It operates in two segments - North America with about two-thirds of revenues and Rest of the world with about a third of revenues.

Growth in earnings per share can be generated from rising demand from new construction for boilers and water heaters, as well as from need for replacements. The need for replacements of water heaters and boilers. A rising market share in China, along with growth in the Chinese market can bolster sales.  International operations in general are expected to generate higher growth over time. The company can generate growth through new product introductions and through expanding of existing product lines. For example, the need for energy efficient units can drive sales down the road.

Strategic acquisitions can further boost revenues and earnings. Recent acquisitions allows A.O. Smith to enter the water treatment products market in North America. 

A slowdown in China can lead to declines in revenues. A decline in housing starts could also negatively affect companies like A.O. Smith. 

The company has reduced the number of shares outstanding by a little bit over the past decade, taking them from 186 million in 2011 to 161 million in 2021. 

The dividend payout ratio increased from 28% in 2011 to 35% in 2021. Based on the expected earnings, the forward dividend payout ratio comes out to 32%. The company’s dividend is very safe and will likely grow at a higher rate than earnings over the past decade due to low payout ratio.

Currently, the stock is attractively valued at 17.17 times forward earnings at yields 1.85%. 

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Stanley Black & Decker: A Dividend King in Focus

Stanley Black & Decker, Inc. (SWK) engages in the tools and storage, industrial, and security businesses worldwide.

The company raised its quarterly dividend by 12.90% to 79 cents/share in July 2021. This marked the 54th consecutive annual dividend increase for this dividend king.

Stanley Black & Decker's CEO, James M. Loree, commented, "I am pleased to continue our trend of consecutive annual dividend increases, which reflects the continued confidence we have in the cash generation potential of the company.  A strong and growing dividend is a key element of our shareholder value proposition, and is consistent with our capital deployment philosophy to deliver approximately half of our excess capital to shareholders over the long term." (source)

Over the past decade, Stanley Black & Decker managed to grow dividends at an annualized rate of 6.20%.

Between 2011 and 2021, earnings per share grew from $3.97 to $9.62. The company is expected to generate $9.82/share in 2022.

The company has managed to grow through acquisitions, notably the merger between Stanley Works and Black & Decker in 2010. In 2017 it acquired the Craftsman brand from Sears. It actively manages its portfolio of products. Growing the businesses through M&A is central to the company’s strategy

The company is looking to increase efficiencies in the supply chain to reduce cost, and increase sales in emerging markets. About 59% of sales comes from the US, 4% in Canada, 24% Europe, 8% Asia. 

Stanley Black & Decker is also focused on growing its e-commerce sales, which account for $2 billion out of its $14 billion in sales.

The company is organized in three segments.

Tools & Storage accounts for 71% of sales and 80% of operating profits. The company is a leader in tools and storage. It has a portfolio of brands that tradespeople and DIY folks rely on. We are speaking about hand tools, power tools like DeWalt, Craftsman, Black & Decker etc.

Industrial accounts for 16% of revenues and 12% of operating profits. It builds solutions like preferred engineered fastening solutions in automotive and industrial channels to inflastructure solutions like hydraulic tools and attachments.

Security accounts for 13% of revenues and 8% of operating profits. The company delivers peace of mind with advanced electronic safety, security and monitoring solutions, automatic doors, and sophisticated patient safety, asset tracking and productivity solutions.

I believe that a picture is worth 1,000 words. Which is why I am including this slide from their annual report, which summarizes their value creation model.

Source: Company's Annual Report

The company managed to reduce the number of shares outstanding between 2011 and 2016 from 170 million to 148 million. Shares outstanding are up since then due to acquisitions.

The payout ratio has largely remained between 30% and 45%, with the exception of two spikes in 2013 and 2018. Those were triggered by one-time accounting items affecting earnings per share in each of those two years.

Currently, the stock is selling for 12.06 times forward earnings and yields 2.65%.

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Dividend Stock Analysis of Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944 and has managed to increase them for 60 years in a row. Dividend increases have been like clockwork every year for decades.

Johnson & Johnson earned $3.49/share in 2011 and managed to grow earnings to $7.81/share in 2021. The company expected to earn between $10.53/share in 2022.

Johnson & Johnson has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. This makes the company somewhat immune from economic cycles. Investors looking for a safe and dependable earnings can look no further than Johnson & Johnson. In addition, the company has strong competitive advantages due to its scale, leadership role in various diverse healthcare segments, breadth of product offerings in its global distribution channels, continued investment in R&D, high switching costs to users of its medical devices, as well as its stable financial position.

Future profits growth could come from new product offerings, which are the result of continued investment in research and development, and through strategic acquisitions.

Johnson & Johnson has managed to reduce number of shares outstanding over the past decade, which helped earnings per share growth. Between 2011 and 2021, the number of shares went from 2,775 million to 2,877 million and then declined to 2,674 million. The short bumps up were related to acquisitions.  

The company managed to grow its dividends by 7.40%/year over the past decade. The company's latest dividend increase was announced in April 2022 when the Board of Directors approved a 6.60% increase in the quarterly dividend to $1.13/share.

The dividend payout ratio has decreased from 64% in 2007 to 54% in 2021. The ability to generate strong cash flows, have enabled Johnson & Johnson to reward shareholders with higher dividends for 60 consecutive years. I believe that the dividend is safe today, but will likely be limited to future growth in earnings per share of 5% - 6%/year over the next decade. A lower payout is always a plus, since it leaves room for consistent dividend growth and minimize the impact of short-term fluctuations in earnings.

Currently, the stock is attractively valued at 16.90 times forward earnings, yields 2.45% and has a forward dividend payout ratio of 43%.

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Texas Instruments (TXN) Dividend Stock Analysis

Texas Instruments Incorporated (TXN) designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing.

The company is a dividend achiever with 18 consecutive years of dividend increases. The last dividend increase was in September 2021, when the Board of Directors hiked quarterly dividends by 12.70% to $1.15/share.

Texas Instruments has managed to grow dividends at an annualized pace of 22.40% over the past decade.

Texas Instruments managed to grow earnings from $1.88/share in 2011 to $8.26/share in 2021. The company is expected to earn $9.26/share in 2022.

While I focus on earnings per share, the growth in Free Cash Flow per share has mirrored EPS growth. TXN focuses on growing FCF/share. Their objective and the best metric to measure progress and generate long-term value for our owners is the growth of free cash flow per share.

I am going to repost their strategy to maximize and grow FCF/share. I love that they have a whole section on their Investor Relations Website, dedicated to growth in FCF/share: (Source: https://investor.ti.com/resources/capital-management)

Our strategy to maximize free cash flow per share growth has three elements:

• First, we have a great business model focused on analog and embedded processing products and built around four sustainable competitive advantages. In combination, our four competitive advantages provide tangible benefits, are difficult to replicate and ultimately separate us from our best peers. They are:

o A strong foundation of manufacturing and technology

o A broad portfolio of analog and embedded processing products

o The reach of our market channels

o Diversity and longevity of our products, markets and customer positions

• The second element of our strategy to maximize free cash flow per share growth is disciplined allocation of capital. This spans how we select R&D projects, develop new capabilities like TI.com, invest in new manufacturing capacity or how we think about acquisitions and returning cash to our owners.

• The third element of our strategy is efficiency, which we think of as always striving to get more output per dollar of cost. This is about getting our investments (spending) in the most impactful areas to maximize the growth of long-term free cash flow per share; it’s not just about optimizing cost-cutting to get the last dollar of expense. As owners, you will see this focus on efficiency contribute to revenue growth, improved gross margins, disciplined R&D and SG&A expense, free cash flow margins and ultimately to free cash flow per share growth.

We will remain focused on the belief that long-term growth of free cash flow per share is the ultimate measure to generate value. To achieve this, we will invest to strengthen our competitive advantages, be disciplined in capital allocation and stay diligent in our pursuit of efficiencies.

Analog is the company’s largest segment, with 77% of total revenue. It had $14.05 billion in revenue. The company is a leader in this segment, which is estimated to be valued at $55 billion. Every electronic product requires analog technology because analog provides the power to run devices and is fundamental to how technology interfaces with human beings, the real world and other electronic devices. Therefore, every time a system is “digitized,” there is growing need and opportunity for analog chips. Source: https://investor.ti.com/static-files/285c885f-42b8-4fb2-a7e3-8284f9413f2f

Embedded Processing has a 2021 revenue of $3.05 billion, or about 17% of total revenue. The company is also a leader in this segment, which is estimated to be valued at $18 billion. Embedded processors are the digital “brains” of many types of electronic equipment. They’re designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application.

The Other segment includes DLP® products and calculators. These account for about 6% of total revenues.

They share characteristics that make them both very attractive businesses:

 • They’re pervasive; analog is used in every electronic device, and embedded processors are used in most.

 • The markets are large, and while we enjoy leading positions in both, we have ample room to grow.

 • They’re highly fragmented and diversified markets, comprised of hundreds of thousands of products and customers.

 • They’re produced on manufacturing equipment that lives for decades, making the business less capital-intensive.

 • Many of the products often last for decades, increasing stability of revenue and returns on investment.

 • They both have history over decades of strong cash generation

In the past decade, the company has outlined how it has spent capital. Spending on R&D, Sales/Marketing, CapEx and Inventory has helped in organic growth. The company spends more than 10% of every sales dollar on research and development, in order to come up with new offerings to customers in the industrial, automotive, personal electronics, communications equipment and enterprise systems. However, acquisitions have helped too, albeit their scale is not very high. The rest was returned to shareholders in the form of dividends and share buybacks. 

I would encourage you to review the Capital Allocation Slides for 2021: https://investor.ti.com/static-files/f857ded4-a672-4de0-adf8-09763519bd1c

Texas Instruments targets to return all free cash flow to shareholders in the form of dividends and share buybacks. The company targets a dividend that is between 40% - 60% of Free Cash Flows. It sets share buyback amounts as the difference between what the business needs to grow and sustain competitive advantages, minus the amounts paid out for dividends.

Growth in earnings per share was aided by a consistent share buybacks. Between 2011 and 2021, the number of shares outstanding went down by a little over 20%. The number of shares decreased from 1.171 billion in 2011 to 936 million in 2020.

The dividend payout ratio has increased from 30% in 2011 to 51% in 2021. Much of the growth occurred through 2012/2013. Since then, the payout ratio has remained in a high range of 45% - 65%. Future dividend growth would be limited to growth in earnings per share.

The stock sells for 19.08 times forward earnings and yields 2.66%.

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Blackrock (BLK) Dividend Stock Analysis

Blackrock (BLK) is the largest investment manager in the world, with over $6.5 trillion in assets under management.

Over the past decade, the stock has compounded by 19.57%/year. Future returns will likely be lower, and they will track growth in earnings per share and the initial dividend yield at the time of investment.

The company has managed to grow dividends for thirteen years in a row. The last dividend increase occurred in January 2022, when the company raised quarterly dividends by 18.20% to $4.88/share.

Between 2009 and 2019, Blackrock compounded dividends at an annualized rate of 11.60%/year. The company last raised dividends by 18.20% to $4.88/share in January 2022. 

Between 2011 and 2021, Blackrock managed to grow its earnings from $12.37/share to $38.22/share. The company is expected to earn $47.24/share in 2022.

The company is a leader in the asset management industry, with tremendous scale. It also has a diversity of products offered (equity, fixed income etc), geographic diversity ( Americas, Europe, Asia etc) in its products offered and the types of strategies offered ( active, passive, cash management). The company also has diversity in clients served – retail & institutional.

 
The company is a leader in ETFs, with tremendous inflows coming its way as there is a trend to switch from high cost mutual funds to ETFs. Unfortunately, passively managed ETFs provide a lot of assets, but not as much in profits as actively managed funds. The actively managed funds that Blackrock manages tend to be a portion of the assets, but account for almost half of profits. Actively managed products accounts for a quarter of assets and half of revenues. Passively managed assets account for over 2/3rds of AUM, but half of revenues.

Blackrock has managed to grow organically, through new product introductions and through acquisitions. Given it massive scale, it is quite possible that new acquisitions will not have as big of an impact in the long-run. The massive scale does create advantages, since it spreads costs over a larger base, thus ensuring higher profits than smaller competitors. This also offers advantages in distribution as well.

Most asset managers manage to grow the bottom line by attracting new funds from new or existing investors, net of any that sell their holdings. Blackrock has done a great job growing assets organically and through acquisitions over the past decade. If financial markets rise over the next decade, it will also benefit from growing assets under management brought by higher prices. This is a two-edged sword however, because it leaves them exposed in the short-run by market volatility. I do believe that in the long-run, assets will likely go up, bringing a nice tailwind to investment managers such as Blackrock. If we get lower prices in the short run however, we will witness lower earnings per share and lower multiples. This is why I am buying those assets managers on the scale down.

The number of outstanding shares increased between 2009 and 2010, due to acquisitions. That was the acquisition of Barclays Global Investors (BGI), which brought the iShares ETF franchise to Blackrock. Blackrock has been steadily reducing the number of share outstanding since then. Regular share buybacks can increase investors ownership interest in an enterprise, and automatically lift earnings per share. Companies have to be careful however not to overpay for shares they are retiring, otherwise they are wasting shareholder assets.

The dividend payout ratio has remained around 45% during the current decade; the only volatility occurred during the 2007 – 2009 financial crisis, when declines in assets under management resulted in lower earnings per share. The company did keep the dividend unchanged in 2009. 

Currently, shares of Blackrock are valued at 22.33 times earnings and spot a dividend yield of 1.90%. 
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Bristol-Myers Squibb (BMY) Dividend Stock Analysis

 Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company is a dividend achiever with a thirteen year track record of annual dividend increases. 

During the past decade, the company has managed to increase dividends at an annualized rate of 3.47%. The last dividend increase was in December 2021, when the company increased its quarterly dividend by 10.20% to 54 cents/share. I believe that future dividend growth will be higher than historical growth, due to the acquisition of Celgene.

Between 2010 and 2020, the company has managed to increase Non-GAAP earnings per share from $2.16 to $6.44. I use non-GAAP EPS because it is cleaner, and takes a look at a lot of one-time items or certain GAAP items that make looking at the business more complicated than it should be. Of course, the downside to this line of thinking is that management may decide to place regular and recurring expenses in the “special items” column, but refer to them as one-time.

Either way, the company is expected to grow Non-GAAP earnings per share to $7.35-$7.55/share by 2021.

Earnings per share will grow from finding new drugs, raising prices on existing ones, selling more, strategic acquisitions, and cutting costs. 

In 2019, Bristol-Myers Squibb acquired Celgene for cash and stock. This diversified its drug portfolio, and provided an additional margin of safety against patent cliffs. 

This deal was accretive to Bristol-Myers due to the fact that the P/E paid for Celgene was lower than the one that BMY stock had; In addition, the part that was financed through debt was accretive, because debt is very cheap today, and is well supported by the company’s strong cash flows. The company is also taking strides to repay it. 

The company has six novel compounds in either early-stages of marketing or late-stages of R&D. These new drugs are mostly in the large market therapeutic areas of oncology and immunology.

While the company has a pipeline of drugs in different stages of approval, there is always the risk of regulatory delays and the risk that they fail to deliver what they were supposed to. Once a drug is approved, it offers its owners the right to be the exclusive seller for a 20-year period of time. This exclusivity comes to an end however, at which point branded drugs lose out market share to cheaper generic drugs. 

It is also projected to generate cost savings or synergies. After all, the company gets to reduce headcount, decrease other expenses in the process, and generate incremental returns due to higher scale of operations. Of course, there is always integration risk, or the risk that the acquisition doesn’t turn out as expected, and the synergies that were expected do not get realized.

The number of shares outstanding decreased from 2 billion in 2008 to 1.637 billion by 2018. The acquisition of Celgene in 2019 has increased the number of shares outstanding to 1.712 billion in 2019 and increased it further to 2.258 billion in 2020.

The payout ratio has decreased over the past decade, from 83% in 2008 to 28% in 2020. A lower payout ratio should provide a better margin of safety from short-term turbulence in earnings per share. It can also provide additional fuel behind future dividend increases. This can result in dividend growth that is faster than earnings growth for a period of time. 

I find the stock to be attractively valued at 8.30 times forward earnings and a dividend yield of 3.47%.

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Dollar General (DG) Dividend Stock Analysis

Dollar General Corporation (DG) is a discount retailer that provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States.

The company initiated a dividend in 2015 at a quarterly rate of 22 cents/share, and has managed to boost it to 42 cents/share in 2021. The rate of the last dividend increase was 16.67% in March 2021. I expect a higher than average dividend growth, because the company is in the initial phase of dividend growth, has a low dividend payout ratio and it also grows earnings at a decent rate.

Between 2011 and 2020, the company managed to increase earnings from $2.22/share to $10.62/share. The company is expected to earn $10.19/share in 2021.

Growth in earnings per share will be driven by increase in number of stores, increases in same-store sales, and share buybacks. Driving profitable sales growth and capturing growing opportunities should serve DG well, along with improving its advantage as a low-cost operator.

Dollar General offers compelling value and convenience to its shoppers, through competitive prices in a small store format. Most of the goods sold by Dollar Stores are food and daily essentials, which are less frequently purchased online and are for immediate consumption, limiting the appeal of waiting days or more for delivery. Dollar stores are able to open in areas other retailers wouldn't because of their small size. A large portion of new stores opened in the US this year are Dollar stores, with about 1/3^rd of them being Dollar General stores.

The company offers convenience to its shoppers, has the advantages of scale, and has the purchasing power to maintain low costs. It offers a lot of private labels in its stores, and a limited number of items, which is good for margins. Most of DG’s stores are in smaller towns, which makes it a very competitive option for shoppers and explains the high gross margins. The company can increase penetration in urban markets, which can bode well for sales. Only about a quarter of stores are in urban areas. This means that 75% of stores are in areas with population of less than 20,000 people. They are strategically placed in food deserts, where other grocery options are miles away. The typical consumer is a lower-income family, that doesn’t shop in large quantities.

Investing in high-growth opportunities, including new store expansion and other strategic initiatives, should remain at the top of the priority list when it comes to capital allocation. The company can also continue investing in its distribution center network, in order to support new store growth and increased productivity. Initiatives include focusing on non-consumables, DG Fresh, and Fast Track.

Dollar stores are also capturing more affluent shoppers hunting for discounts on essentials. Consumers may be looking to save even more money now that inflation is ticking up.

Dollar General has repurchased shares at a steady clip over the past decade. It looks like the company has managed to repurchase at least 3% of shares outstanding in each year since 2011. The only exception is in 2018, when it repurchased 2.56%.

The dividend payout ratio started at 22.30% in 2015 and is at 13.60% today. There is ample room for future dividend growth from earnings growth, as well as a gradual increase in the dividend payout ratio.

 

The stock is selling for 21.44 times forward earnings and yields 0.77%. While the company is at the top of its valuation range in terms of P/E, it will most probably grow earnings per share at a decent rate over the next decade.

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