During the past week, there were several dividend increases from companies with at least a ten year history of annual dividend increases. I reviewed each company's latest dividend increase relative to the ten year average.In addition, I also reviewed trends in earnings per share, in order to determine if the dividend increases are rooted in fundamental growth. Without earnings growth, future dividend increases and growth in intrinsic value will be limited.
Last but not least, I also reviewed each company's valuation. I was not very impressed with the companies listed below. There were a few that I find interesting, but unfortunately they are sold at high valuations.
A dividend increase is a testament to a company's commitment to returning capital to shareholders. A dividend increase reflects a company's continued confidence in the business and in its growth opportunities. It also reinforces the idea that its focus on creating meaningful value for clients benefits all stakeholders.
The companies for today's review include:
The Ensign Group, Inc. (ENSG) provides health care services in the post-acute care continuum and other ancillary businesses. The company operates in three segments: Transitional and Skilled Services; Assisted and Independent Living Services; and Home Health and Hospice Services.
The company increased its quarterly dividend by 12.60% to 5 cents/share. This marked the eleventh year of annual dividend increases for this dividend achiever. During the past decade, it has managed to boost distributions at an annualized rate of 14.95%.
Between 2008 and 2018, earnings per share increased from 67 cents/share to $1.70/share. Between 2011 and 2017, earnings went nowhere, until the rose in 2018. Ensign is expected to earn $2.19/share in 2019.
The stock is overvalued at 20.85 times forward earnings and yields half a percent.
HEICO Corporation (HEI) designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally.
The company raised its semi-annual dividend by 14.30% to 8 cents/share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, Heico has managed to boost dividends at an annualized rate of 17.40%.
Between 2009 and 2019, Heico has managed to increase earnings from 35 cents/share to $2.39/share.
The company is expected to earn $2.69/share in 2020.
The stock is overvalued at 43.40 times forward earnings and offers a low yield of 0.15%. Investors who buy this stock do it for the future growth and capital appreciation potential, not so much for future dividend income. Even if you bought a decade ago, your yield on cost would be under 2%, but you would be sitting on a ten-bagger.
I find the following snippets from the company's press release interesting:
This increased cash dividend reflects our Board of Directors’ unwavering belief in, and support of, HEICO's long-term growth objectives and financial outlook. We are honored to lead the talented group of professionals at HEICO and we look forward to the future.
A $100,000 investment in HEICO shares in 1990 become worth approximately $50.3 million as of the close of trading on December 13, 2019, representing a compound annual growth rate of 24%
Norwood Financial Corp.(NWFL) operates as the bank holding company for Wayne Bank that provides various banking products and services.
The company raised its quarterly dividend by 4.20% to 25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. During the past decade, it has managed to boost dividends at an annualized rate of 3.80%.
The bank was unable to grow earnings by much between 2008 and 2017, and it is only because of earnings hitting $2.17/share in 2018 that earnings increased during the past decade.
The stock sells at 18.10 times earnings, yields 2.50%, but is unimpressive due to the slow earnings and dividends growth.
The Andersons, Inc. (ANDE) is an agriculture company, operates in the grain, ethanol, plant nutrient, and rail sectors in the United States and internationally.
The company raised its quarterly dividend by 2.90% to 17.50 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, Andersons has managed to grow distributions at an annualized rate of 11.80%.
Between 2008 and 2018, earnings rose from $1.19 to $1.46/share.
The company is expected to earn $1.14/share in 2019.
At 22.50 times forward earnings, the stock is overvalued. The dividend yield is adequate at 2.70%, and it is adequately covered. The lack of meaningful earnings growth over the past decade, coupled with the slow raise last week makes me unexcited about this company.
Waste Management, Inc. (WM), provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America.
The company hiked its quarterly dividend by 6.35% to 54.50 cents/share. This action marks the 17th consecutive year of dividend increases for Waste Management. During the past decade, it has managed to boost distributions at an annualized rate of 5.60%.
Waste Management grew its earnings from $2.19/share in 2008 to $4.45/share in 2018.
Waste Management is expected to generate $4.34/share in 2019.
The stock is overvalued at 26.10 times forward earnings and yields 1.90%. While it has a dependable business model, I would not want to own it at any price. I reviewed Waste Management in 2010, but passed on the stock because its earnings had gone nowhere for several years. Between 2008 and 2015, earnings per share didn't increase at all.
I found the following snippet from the company's press release to be fairly fascinating:
“Dividends remain our top priority for capital allocation after we invest in the business to drive long-term profitable growth,” said Jim Fish, President and Chief Executive Officer of Waste Management, Inc. “Our business continues to generate strong and consistent free cash flow,(a) and we are pleased to be increasing our planned quarterly dividend rate for the seventeenth consecutive year.”
W. P. Carey (WPC) ranks among the largest net lease REITs with an enterprise value of approximately $21 billion and a diversified portfolio of operationally-critical commercial real estate that includes 1,204 net lease properties covering approximately 138 million square feet. For over four decades, the company has invested in high-quality single-tenant industrial, warehouse, office, retail and self-storage properties subject to long-term net leases with built-in rent escalators. Its portfolio is located primarily in the U.S. and Northern and Western Europe and is well-diversified by tenant, property type, geographic location and tenant industry.
The REIT managed to boost its distribution to $1.038/share, which is less than 1% from its distribution paid during the same time last year. Over the past decade, it has managed to grow dividends by 7.70%/year annualized. Dividend growth has been slowing down substantially however. This dividend achiever has managed to grow annual dividends for 21 years in a row.
W.P. Carey has managed to grow AFFO/share from $3.09 in 2008 to $5.39 in 2018. The REIT is expecing AFFO/share of $4.95 in 2019.
The REIT is adequately valued at 15.85 times forward AFFO/share, and yields 5.30%. The distribution growth is slowing down, which is something I need to monitor.
This is my favorite statement from their press release:
"We are extremely proud of our more than 20-year history of annual dividend increases, reflecting our commitment to providing rising income and building long-term value for our shareholders."
Urstadt Biddle Properties Inc. (UBA) is a self-administered equity real estate investment trust which owns or has equity interests in 83 properties containing approximately 5.3 million square feet of space.
The REIT boosted its quarterly dividend by 1.80% to 28 cents/share, marking the 26th consecutive annual dividend increase. Over the past decade, this dividend champion has managed to boost distributions at an annualized rate of 1.29%.
The REIT is selling for 17.40 times FFO and yields 4.70%.
ABM Industries Incorporated (ABM) provides integrated facility solutions in the United States and internationally. It operates through Business & Industry, Aviation, Technology & Manufacturing, Education, Technical Solutions, and Healthcare segments.
The company increased its quarterly dividend by 2.80% to 18.50 cents/share, marking the 53rd consecutive annual dividend increase for this dividend king. Over the past decade, it has managed to increase distributions at an annualized rate of 3.40%.
Between 2009 and 2019, ABM managed to boost earnings from $1.05/share to $1.90/share.
The company is expected to generate $2.02/share.
The stock is fully valued at 19.20 times forward earnings, offers low dividend yield of 1.90%, and has a low dividend growth rate. I would view it as a hold at best.
Balchem Corporation (BCPC) develops, manufactures, and markets specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, medical sterilization, and industrial markets in the United States and internationally.
The company increased its quarterly dividend by 10.60% to 52 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade Belchem has managed to hike dividends at an annualized rate of 19.10%.
Balchem grew earnings from $0.67/share in 2008 to $2.42/share in 2018. Balchem Corporation is expected to generate $3.17/share in 2019.
I found the following snippets from the company's press release to be fascinating:
“Balchem has a long-standing commitment to an annual dividend and we are pleased to announce the continuation of that commitment. This dividend represents the tenth consecutive increase in our annual dividend, reflecting both the consistently outstanding financial performance the company has delivered and the Board’s continued confidence in our long-term strategies.”
The stock is overvalued at 32 times forward earnings and yields 2%. Sadly, the companies growing earnings and distributions at a decent clip today are only available at inflated valuations.
Calvin B. Taylor Bankshares, Inc. (TYCB) operates as the holding company for Calvin B. Taylor Banking Company that provides commercial banking products and services for individuals, small-to medium-sized businesses, associations, and governmental entities.
The bank raised its quarterly dividend by 24% to 25 cents/share. This is the 29th year that the board of directors has increased the regular annual cash dividend.
Over the past decade, this dividend champion has managed to increase distributions at an annualized rate of 1.50%.
The slow dividend growth rate makes sense, since earnings per share went from $2.33 in 2007, through a long and painful decline that ended in 2014, before recovering to $2.64/share in 2018.
At 13.40 times earnings and a dividend yield of 2.80%, the stock is fairly valued. Without growth in earnings however, future dividend growth will be unexciting.
Farmers & Merchants Bancorp, Inc. (FMAO) operates as the bank holding company for The Farmers & Merchants State Bank that provides commercial banking, retail banking, and other financial products and services to individuals and small businesses in northwest Ohio and northeast Indiana.
Farmers & Merchants Bancorp declared a quarterly dividend of 16 cents/share, which was a 6.70% increase over the prior dividend of 15 cents/share. This action represents the 25th consecutive annual increase in the Company’s regular dividend payment since 1994. This dividend champion has managed to increase distributions by 5%/year over the past decade.
The company managed to grow earnings from 69 cents/share in 2008 to $1.61/share in 2018.
The stock is overvalued at 19.25 times earnings, and offers a dividend yield of less than 2%.
Thank you for reading!
Relevant Articles:
- Eleven Companies Spreading Holiday Cheers To Shareholders
- Six Companies Rewarding Their Thankful Shareholders With a Raise
- Ten companies delivering value to their shareholders
- Ten Companies Rewarding Investors With Dividend Hikes Last Week
Monday, December 23, 2019
Thursday, December 19, 2019
Risk Management
A few months ago, FedEx shares dropped by 12%, due to the company issuing a softer guidance. Just yesterday, FedEx dropped by 10% after issuing a softer earnings report. FedEx seemed to be blaming the trade tensions, and the challenging economy. By contract, competitor UPS seemed to be doing better in the current environment. Perhaps the integration of TNT Express is not doing as well, or perhaps there are other problems with the execution, which is why investors are punishing the stock price. Check my analysis of FedEx for more information about the company.
As a result, I wanted to share with you my risk management process, when it comes to investing.
As dividend investor, I do a lot of analysis to uncover quality companies and acquire them at the right price. However, once I do that, I know that things can change. No matter how much analysis you do, things can change in a way you didn’t expect. This is why I believe in the power of diversification. In my case, I own shares of FedEx (FDX).
I also own shares of UPS (UPS), which account for a similar portion of the portfolio. This is why I diversify. Check my analysis of United Parcel Service (UPS) for more information about the company.
Of course, I have exposure to other companies in the portfolio, which is why owning FedEx is not a big blow to the portfolio. In fact, FedEx can go to zero and the dividend could go to zero tomorrow. And the dividend investor portfolio will still grow in value and the dividends generated from the portfolio will still be growing.
Another risk management technique I have is that I build positions slowly, and over time. This slow allocation allows me to react to events that contradict my bullish thesis, and stop putting money if things are getting bad. I will end up with a smaller position in companies that do not work out, thus protecting capital. I could allocate capital elsewhere, for potentially better outcomes. In the case of FedEx, I have bought the position gradually and over time.
As an investor, my goal is not to micromanage the business or management. I cannot run FedEx. So my only take-away from this decline is whether I should buy more, hold or sell my shares.
The only reason I may sell a stock would be if it cuts dividends – I would do that in an effort to preserve capital and try to maintain a certain level of dividend income ( so that I do not lose too much dividend income). The other reason I may sell is if a company is acquired in cash. The third reason is if I sell for any other reason. I have found that selling shares for any reason other than one and two is usually a mistake. I did an analysis of stock sales I had done, and the subsequent investments made with the proceeds. I found out that I would have been better off in most circumstances by not doing anything. This makes sense, because by the time you sell, chances are that the investment may not have been performing as well. However, if everyone else saw that, chances are they would have sold out already, thus creating a low enough price that discounts most future negative events. Investing is never a slam dunk, but I have found that selling is usually a mistake. I analyzed the track records of a few dividend investors who publicly share their investments, and also found out that their sales are usually a mistake.
So in FedEx’s case, since the company is not cutting dividends, I will hold on to it.
The other question is whether I should add to FedEx, given the fact that the shares are down and valuation is slightly better. In my reviews, I tend to look for companies with a certain streak of annual dividend increases, a certain level of dividend and earnings growth, a decent valuation and a dependable dividend payout ratio. As part of my monitoring process, I review companies I own in order to see if my thesis is still intact. I will not sell if things are not going as planned, because all companies go through short-term issues. It is tough to say in advance which companies will resolve their issues, and which won’t. My analysis discussed above has shown me that it is better to stick to my investments.
As part of my review, I skim quarterly press releases and dividend news announcements. I have found that dividend announcements typically tell me what management expects the business conditions to be in the near term. If they keep raising dividends at a certain pace, and all of a sudden they stop growing it in a dramatic fashion, I know that something is going on. It makes sense that the dividend will be a good gauge of the company performance – a dividend is a capital allocation decision that fights for other capital allocation needs of the company. A dividend instills discipline on management. If management teams have a soft outlook for revenues and earnings, they will not increase dividends as much, because they do not want to grow it too quickly, only to cut it later.
In the case of FedEx, a few months ago their management team decided to keep the dividend unchanged for a fifth quarter in a row. This showed me that I something unexpected is going on with FedEx. This is why I discussed with you a few months ago that I will not be adding to my stake in FedEx. I will not be buying today either. If FedEx starts raising dividends in a quarter or so, I will reassess my opinion of the company.
After discussing my sale and buy requirements, I end up with the default answer to most questions – I will hold my shares of FedEx for the time being. I hold on to shares, and give management time to turn the ship around. Noone knows if FedEx will turn the ship around or end up a complete and utter failure. This is why I do not believe in acting on a single data point and just selling everything off. I know from experience that some companies need a few years to turn around. This is fine, because no matter the headlines, I receive cold hard cash in the form of dividends every quarter. This is what helps me stay invested.
This is the same decision I ended up with on CVS Health (CVS) after the company stopped growing the dividend.
What is your opinion on FedEx? Are you buying more, holding or selling? What is your risk management process?
I would love to hear from you at dividendgrowthinvestor@gmail.com
Relevant Articles:
- Dividend Investing Risks
- Dividend Investing Is Not As Risky As It Is Portrayed Out To Be
- How to define risk in dividend paying stocks?
- What is dividend investment risk?
- No Risk Stock Market Investing
As a result, I wanted to share with you my risk management process, when it comes to investing.
As dividend investor, I do a lot of analysis to uncover quality companies and acquire them at the right price. However, once I do that, I know that things can change. No matter how much analysis you do, things can change in a way you didn’t expect. This is why I believe in the power of diversification. In my case, I own shares of FedEx (FDX).
I also own shares of UPS (UPS), which account for a similar portion of the portfolio. This is why I diversify. Check my analysis of United Parcel Service (UPS) for more information about the company.
Of course, I have exposure to other companies in the portfolio, which is why owning FedEx is not a big blow to the portfolio. In fact, FedEx can go to zero and the dividend could go to zero tomorrow. And the dividend investor portfolio will still grow in value and the dividends generated from the portfolio will still be growing.
Another risk management technique I have is that I build positions slowly, and over time. This slow allocation allows me to react to events that contradict my bullish thesis, and stop putting money if things are getting bad. I will end up with a smaller position in companies that do not work out, thus protecting capital. I could allocate capital elsewhere, for potentially better outcomes. In the case of FedEx, I have bought the position gradually and over time.
As an investor, my goal is not to micromanage the business or management. I cannot run FedEx. So my only take-away from this decline is whether I should buy more, hold or sell my shares.
The only reason I may sell a stock would be if it cuts dividends – I would do that in an effort to preserve capital and try to maintain a certain level of dividend income ( so that I do not lose too much dividend income). The other reason I may sell is if a company is acquired in cash. The third reason is if I sell for any other reason. I have found that selling shares for any reason other than one and two is usually a mistake. I did an analysis of stock sales I had done, and the subsequent investments made with the proceeds. I found out that I would have been better off in most circumstances by not doing anything. This makes sense, because by the time you sell, chances are that the investment may not have been performing as well. However, if everyone else saw that, chances are they would have sold out already, thus creating a low enough price that discounts most future negative events. Investing is never a slam dunk, but I have found that selling is usually a mistake. I analyzed the track records of a few dividend investors who publicly share their investments, and also found out that their sales are usually a mistake.
So in FedEx’s case, since the company is not cutting dividends, I will hold on to it.
The other question is whether I should add to FedEx, given the fact that the shares are down and valuation is slightly better. In my reviews, I tend to look for companies with a certain streak of annual dividend increases, a certain level of dividend and earnings growth, a decent valuation and a dependable dividend payout ratio. As part of my monitoring process, I review companies I own in order to see if my thesis is still intact. I will not sell if things are not going as planned, because all companies go through short-term issues. It is tough to say in advance which companies will resolve their issues, and which won’t. My analysis discussed above has shown me that it is better to stick to my investments.
As part of my review, I skim quarterly press releases and dividend news announcements. I have found that dividend announcements typically tell me what management expects the business conditions to be in the near term. If they keep raising dividends at a certain pace, and all of a sudden they stop growing it in a dramatic fashion, I know that something is going on. It makes sense that the dividend will be a good gauge of the company performance – a dividend is a capital allocation decision that fights for other capital allocation needs of the company. A dividend instills discipline on management. If management teams have a soft outlook for revenues and earnings, they will not increase dividends as much, because they do not want to grow it too quickly, only to cut it later.
In the case of FedEx, a few months ago their management team decided to keep the dividend unchanged for a fifth quarter in a row. This showed me that I something unexpected is going on with FedEx. This is why I discussed with you a few months ago that I will not be adding to my stake in FedEx. I will not be buying today either. If FedEx starts raising dividends in a quarter or so, I will reassess my opinion of the company.
After discussing my sale and buy requirements, I end up with the default answer to most questions – I will hold my shares of FedEx for the time being. I hold on to shares, and give management time to turn the ship around. Noone knows if FedEx will turn the ship around or end up a complete and utter failure. This is why I do not believe in acting on a single data point and just selling everything off. I know from experience that some companies need a few years to turn around. This is fine, because no matter the headlines, I receive cold hard cash in the form of dividends every quarter. This is what helps me stay invested.
This is the same decision I ended up with on CVS Health (CVS) after the company stopped growing the dividend.
What is your opinion on FedEx? Are you buying more, holding or selling? What is your risk management process?
I would love to hear from you at dividendgrowthinvestor@gmail.com
Relevant Articles:
- Dividend Investing Risks
- Dividend Investing Is Not As Risky As It Is Portrayed Out To Be
- How to define risk in dividend paying stocks?
- What is dividend investment risk?
- No Risk Stock Market Investing
Monday, December 16, 2019
Eleven Companies Spreading Holiday Cheers To Shareholders
As part of my review process, I evaluate dividend increases every week. This process helps me to see how my portfolio holdings are doing. It also helps me to uncover and review new candidates for my portfolio.
I look for dependable dividends from companies with a minimum ten-year streak of annual dividend increases, fueled by earnings growth. I look for dependable dividends from companies with dependable earnings, and solid competitive advantages, which I can acquire at attractive valuations.
During the past week, the following companies increased dividends to shareholders. Each company has a ten year streak of annual dividend increases. I review the latest dividend increase relative to the ten year average, and the growth in earnings per share over the past decade. Last but not least, I discuss current valuation. The companies include:
Franklin Resources, Inc. (BEN) is a publicly owned asset management holding company. Through its subsidiaries, the firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. It launches equity, fixed income, balanced, and multi-asset mutual funds through its subsidiaries.
The company increase its quarterly dividend by 3.85% to 27 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to hike distributions at an annualized rate of 13.20%. The latest increase is a testament to the challenges which the company is facing, as its earnings and assets under management are in a decline.
Between 2008 and 2014, earnings per share increased from $2.22 to $3.79. Franklin Resources earned $2.35/share in 2019. Franklin Resources is expected to generate $2.54/share in 2019.
The company reduced the number of shares from 715 million in 2008 to 504 million in 2019. They were shrinking an already shrinking business – without the buybacks earnings per share growth would have been negative over the past decade.
The stock is cheap at 10.20 times forward earnings, a dividend yield of 4.15% and a payout ratio of 42.50%. If earnings decline over time however, that dividend will be in jeopardy. Check my analysis of Franklin Resources for more information about the company.
Realty Income (O) is a REIT which generates cash flow from over 5,900 real estate properties owned under long-term lease agreements with commercial tenants.
The Monthly Dividend Company is dedicated to providing stockholders with dependable monthly income. Just last week, it increased its monthly dividend to 22.75 cents/share. This is a 2.95% increase over the dividend paid during the same time last year. During the past decade, Realty Income has managed to boost dividends at an annualized rate of 4.45%. After this raise, Realty Income is officially joining the list of Dividend Champions!
Between 2008 and 2018, Realty Income has managed to grow FFO/share from $1.83 to $3.12. The company expects FFO/share to be in the range of $3.26-$3.31.
Right now, the stock of this otherwise well-managed REIT is overvalued at 22.20 times forward FFO. Realty Income yields 3.75%. If I wanted to buy Realty Income at a 5% yield, I would have to wait for an entry price below $55/share.
Check my analysis of Realty Income for more information about the company.
WD-40 Company (WDFC) develops and sells maintenance products, and homecare and cleaning products in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.
The company boosted its quarterly dividend by 9.80% to 67 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, WD-40 has managed to increase dividends at an annualized rate of 8%.
Between 2009 and 2019, WD-40 has managed to increase earnings from $1.28/share to $4.02/share. WD-40 is expected to earn $4.79/share in 2019.
The stock is really overvalued at 40.80 times forward earnings. Its yield is at 1.35%.
When I reviewed WD-40 in 2014, I considered the stock overvalued at 24.70 times forward earnings and a dividend yield of 2%.
J & J Snack Foods Corp. (JJSF) manufactures, markets, and distributes nutritional snack foods and beverages in the United States, Mexico, and Canada. It operates in three segments: Food Service, Retail Supermarkets, and Frozen Beverages.
J & J Snack Foods managed to increase its quarterly dividend by 15% to 57.50 cents/share, marking its 16th year of annual dividend increases. During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 17.10%.
Between 2009 and 2019, J &J Snack Foods has managed to increase earnings from $2.21/share to $5/share. The company is expected to earn $5.21/share in 2020.
Unfortunately, this company’s stock is overvalued at 35.50 times forward earnings. It yields 1.25%.
SEI Investments Company (SEIC) is a publicly owned asset management holding company. Through its subsidiaries, the firm provides wealth management, retirement and investment solutions, asset management, asset administration, investment processing outsourcing solutions, financial services, and investment advisory services to its clients.
The company raised its semi-annual dividend by 6.10% to 35 cents/share. This increase marked the 29th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to increase distributions at an annualized rate of 14.90%.
The company’s earnings declined from $1.28/share in 2007 to 71 cents/share in 2008. Since then, SEI Investments has managed to grow earnings to $3.14/share in 2018. SEI Investments is expected to generate $3.23/share in 2019.
The stock is slightly overvalued at 20.40 times forward earnings and yields 1.05%.
AT&T Inc. (T) provides telecommunication, media, and technology services worldwide. The company operates through four segments: Communications, WarnerMedia, Latin America, and Xandr.
The company raised its quarterly dividend by 1.95% to 52 cents/share. Over the past decade, AT&T has rewarded shareholders with a 2.25% annualized dividend increase.
Between 2008 and 2018, earnings increased from $2.16 to $2.85/share. AT&T is expected to earn $3.54/share in 2019.
Although the stock has increased in price this year and has a slow growth, it still looks attractively valued at 10.80 times forward earnings and a dividend yield of 5.40%. AT&T may be a good idea for further research for retirees looking for dependable current income. If your analysis shows it is a good idea, it may be worth a look.
Dominion Energy, Inc. (D) produces and transports energy. The company operates in four segments – Power Delivery, Power Generation, Gas Infrastructure and Southeast Energy.
Dominion Energy increased its quarterly dividend by 2.45% to 94 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.80%.
The earnings history over the past decade has been spotty, due to one-time adjustments for which the numbers have to be corrected for ( and which won’t be done for the purposes of this weekly review).
Dominion Energy is expected to generate $4.20/share in 2019.
The stock seems richly valued at 19.25 times forward earnings but yields 4.60%. The forward payout ratio is at 89.50%, which is a little high for my liking. Dividend growth may disappoint given the high payout ratio, unless the company manages to grow its earnings per share.
Edison International (EIX) engages in the generation, transmission, and distribution of electricity in the United States. It generates electricity through hydroelectric, diesel/liquid petroleum gas, natural gas, nuclear, and photovoltaic sources.
The company raised its quarterly dividend by 4.10% to 63.75 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. During the past decade, Edison International has managed to increase distributions at an annualized rate of 7.10%.
The company is expected to earn $4.69/share in 2019. Edison International earned $3.68/share in 2008. Earnings have been mostly flat for extended periods of time, interrupted by some one-time declines into loss territory.
Currently, the stock is selling for 15.50 times forward earnings and offers a yield of 3.50%. The company is one of those utilities that grow earnings on an irregular basis, then grows dividends for a while, until it cuts them. Perhaps the performance of their peer PG&E is the real reason I am skeptical about this utility.
Nucor Corporation (NUE) manufactures and sells steel and steel products in the United States and internationally. It operates in three segments: Steel Mills, Steel Products, and Raw Materials.
The company raised its dividend by 0.60% to 40.25 cents/share, marking the 47th year of annual dividend increases for this dividend champion. During the past decade, Nucor has increased dividends by 1.50%/year.
Between 2008 and 2018, earnings per share increased from $5.98 to $7.42. Earnings per share were below 2008’s figures between 2009 and 2017. Nucor is expected to earn $4.33/share in 2019.
The company has not performed very well, relative to other companies. However, it is probably the best performing steel company over the past half a century and the only one with a track record of annual dividend increases to be a dividend champion. ( and perhaps a dividend king in three years). Nucor is operating in an incredibly tough industry, which means that its performance is really good in that perspective. A few of its prominent competitors have lost money and gone bankrupt in that time. That doesn’t mean it is a good investment per se today, but I am writing this merely to point it as an example for further study for serious dividend investors.
Right now, Nucor looks cheap at 13 times forward earnings and a dividend yield of 2.85%.
Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services for the policyholders on behalf of the Erie Insurance Exchange.
The company raised its quarterly dividend by 7.20% to 96.50 cents/share. This marked the 30th consecutive annual dividend increase for this dividend champion. During the past decade, ERIE Insurance has managed to increase dividends at an annualized rate of 6.70%.
Between 2007 and 2018, Erie Indemnity has managed to grow earnings from $3.43/share to $5.51/share. Erie Indemnity is expected to earn $6.21/share in 2019.
The company is expected to earn 27.20 times forward earnings and yields 2.30%.
Abbott Laboratories (ABT) discovers, develops, manufactures, and sells health care products worldwide.
The board of directors of Abbott increased the company's quarterly common dividend by 12.50% to 36 cents per share.
Abbott has increased its dividend payout for 48 consecutive years and is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased dividends annually for at least 25 consecutive years. The dividend champions list included it, when I managed it, consistent with the inclusion of Altria. Since other people are managing it however, they are not including Abbott.
Abbott is expected to generate $3.24/share in 2019.
The stock is overvalued at 26.65 times forward earnings and offers a dividend yield of 1.65%. Abbott may be worth a second look on dips below $65/share.
Relevant Articles:
- My Entry Criteria for Dividend Stocks
- How to value dividend stocks
- Four Dividend Increases for Further Review
- Five Consumer Staples to Consider On Dips
I look for dependable dividends from companies with a minimum ten-year streak of annual dividend increases, fueled by earnings growth. I look for dependable dividends from companies with dependable earnings, and solid competitive advantages, which I can acquire at attractive valuations.
During the past week, the following companies increased dividends to shareholders. Each company has a ten year streak of annual dividend increases. I review the latest dividend increase relative to the ten year average, and the growth in earnings per share over the past decade. Last but not least, I discuss current valuation. The companies include:
Franklin Resources, Inc. (BEN) is a publicly owned asset management holding company. Through its subsidiaries, the firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. It launches equity, fixed income, balanced, and multi-asset mutual funds through its subsidiaries.
The company increase its quarterly dividend by 3.85% to 27 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to hike distributions at an annualized rate of 13.20%. The latest increase is a testament to the challenges which the company is facing, as its earnings and assets under management are in a decline.
Between 2008 and 2014, earnings per share increased from $2.22 to $3.79. Franklin Resources earned $2.35/share in 2019. Franklin Resources is expected to generate $2.54/share in 2019.
The company reduced the number of shares from 715 million in 2008 to 504 million in 2019. They were shrinking an already shrinking business – without the buybacks earnings per share growth would have been negative over the past decade.
The stock is cheap at 10.20 times forward earnings, a dividend yield of 4.15% and a payout ratio of 42.50%. If earnings decline over time however, that dividend will be in jeopardy. Check my analysis of Franklin Resources for more information about the company.
Realty Income (O) is a REIT which generates cash flow from over 5,900 real estate properties owned under long-term lease agreements with commercial tenants.
The Monthly Dividend Company is dedicated to providing stockholders with dependable monthly income. Just last week, it increased its monthly dividend to 22.75 cents/share. This is a 2.95% increase over the dividend paid during the same time last year. During the past decade, Realty Income has managed to boost dividends at an annualized rate of 4.45%. After this raise, Realty Income is officially joining the list of Dividend Champions!
Between 2008 and 2018, Realty Income has managed to grow FFO/share from $1.83 to $3.12. The company expects FFO/share to be in the range of $3.26-$3.31.
Right now, the stock of this otherwise well-managed REIT is overvalued at 22.20 times forward FFO. Realty Income yields 3.75%. If I wanted to buy Realty Income at a 5% yield, I would have to wait for an entry price below $55/share.
Check my analysis of Realty Income for more information about the company.
WD-40 Company (WDFC) develops and sells maintenance products, and homecare and cleaning products in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.
The company boosted its quarterly dividend by 9.80% to 67 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, WD-40 has managed to increase dividends at an annualized rate of 8%.
Between 2009 and 2019, WD-40 has managed to increase earnings from $1.28/share to $4.02/share. WD-40 is expected to earn $4.79/share in 2019.
The stock is really overvalued at 40.80 times forward earnings. Its yield is at 1.35%.
When I reviewed WD-40 in 2014, I considered the stock overvalued at 24.70 times forward earnings and a dividend yield of 2%.
J & J Snack Foods Corp. (JJSF) manufactures, markets, and distributes nutritional snack foods and beverages in the United States, Mexico, and Canada. It operates in three segments: Food Service, Retail Supermarkets, and Frozen Beverages.
J & J Snack Foods managed to increase its quarterly dividend by 15% to 57.50 cents/share, marking its 16th year of annual dividend increases. During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 17.10%.
Between 2009 and 2019, J &J Snack Foods has managed to increase earnings from $2.21/share to $5/share. The company is expected to earn $5.21/share in 2020.
Unfortunately, this company’s stock is overvalued at 35.50 times forward earnings. It yields 1.25%.
SEI Investments Company (SEIC) is a publicly owned asset management holding company. Through its subsidiaries, the firm provides wealth management, retirement and investment solutions, asset management, asset administration, investment processing outsourcing solutions, financial services, and investment advisory services to its clients.
The company raised its semi-annual dividend by 6.10% to 35 cents/share. This increase marked the 29th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to increase distributions at an annualized rate of 14.90%.
The company’s earnings declined from $1.28/share in 2007 to 71 cents/share in 2008. Since then, SEI Investments has managed to grow earnings to $3.14/share in 2018. SEI Investments is expected to generate $3.23/share in 2019.
The stock is slightly overvalued at 20.40 times forward earnings and yields 1.05%.
AT&T Inc. (T) provides telecommunication, media, and technology services worldwide. The company operates through four segments: Communications, WarnerMedia, Latin America, and Xandr.
The company raised its quarterly dividend by 1.95% to 52 cents/share. Over the past decade, AT&T has rewarded shareholders with a 2.25% annualized dividend increase.
Between 2008 and 2018, earnings increased from $2.16 to $2.85/share. AT&T is expected to earn $3.54/share in 2019.
Although the stock has increased in price this year and has a slow growth, it still looks attractively valued at 10.80 times forward earnings and a dividend yield of 5.40%. AT&T may be a good idea for further research for retirees looking for dependable current income. If your analysis shows it is a good idea, it may be worth a look.
Dominion Energy, Inc. (D) produces and transports energy. The company operates in four segments – Power Delivery, Power Generation, Gas Infrastructure and Southeast Energy.
Dominion Energy increased its quarterly dividend by 2.45% to 94 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.80%.
The earnings history over the past decade has been spotty, due to one-time adjustments for which the numbers have to be corrected for ( and which won’t be done for the purposes of this weekly review).
Dominion Energy is expected to generate $4.20/share in 2019.
The stock seems richly valued at 19.25 times forward earnings but yields 4.60%. The forward payout ratio is at 89.50%, which is a little high for my liking. Dividend growth may disappoint given the high payout ratio, unless the company manages to grow its earnings per share.
Edison International (EIX) engages in the generation, transmission, and distribution of electricity in the United States. It generates electricity through hydroelectric, diesel/liquid petroleum gas, natural gas, nuclear, and photovoltaic sources.
The company raised its quarterly dividend by 4.10% to 63.75 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. During the past decade, Edison International has managed to increase distributions at an annualized rate of 7.10%.
The company is expected to earn $4.69/share in 2019. Edison International earned $3.68/share in 2008. Earnings have been mostly flat for extended periods of time, interrupted by some one-time declines into loss territory.
Currently, the stock is selling for 15.50 times forward earnings and offers a yield of 3.50%. The company is one of those utilities that grow earnings on an irregular basis, then grows dividends for a while, until it cuts them. Perhaps the performance of their peer PG&E is the real reason I am skeptical about this utility.
Nucor Corporation (NUE) manufactures and sells steel and steel products in the United States and internationally. It operates in three segments: Steel Mills, Steel Products, and Raw Materials.
The company raised its dividend by 0.60% to 40.25 cents/share, marking the 47th year of annual dividend increases for this dividend champion. During the past decade, Nucor has increased dividends by 1.50%/year.
Between 2008 and 2018, earnings per share increased from $5.98 to $7.42. Earnings per share were below 2008’s figures between 2009 and 2017. Nucor is expected to earn $4.33/share in 2019.
The company has not performed very well, relative to other companies. However, it is probably the best performing steel company over the past half a century and the only one with a track record of annual dividend increases to be a dividend champion. ( and perhaps a dividend king in three years). Nucor is operating in an incredibly tough industry, which means that its performance is really good in that perspective. A few of its prominent competitors have lost money and gone bankrupt in that time. That doesn’t mean it is a good investment per se today, but I am writing this merely to point it as an example for further study for serious dividend investors.
Right now, Nucor looks cheap at 13 times forward earnings and a dividend yield of 2.85%.
Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services for the policyholders on behalf of the Erie Insurance Exchange.
The company raised its quarterly dividend by 7.20% to 96.50 cents/share. This marked the 30th consecutive annual dividend increase for this dividend champion. During the past decade, ERIE Insurance has managed to increase dividends at an annualized rate of 6.70%.
Between 2007 and 2018, Erie Indemnity has managed to grow earnings from $3.43/share to $5.51/share. Erie Indemnity is expected to earn $6.21/share in 2019.
The company is expected to earn 27.20 times forward earnings and yields 2.30%.
Abbott Laboratories (ABT) discovers, develops, manufactures, and sells health care products worldwide.
The board of directors of Abbott increased the company's quarterly common dividend by 12.50% to 36 cents per share.
Abbott has increased its dividend payout for 48 consecutive years and is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased dividends annually for at least 25 consecutive years. The dividend champions list included it, when I managed it, consistent with the inclusion of Altria. Since other people are managing it however, they are not including Abbott.
Abbott is expected to generate $3.24/share in 2019.
The stock is overvalued at 26.65 times forward earnings and offers a dividend yield of 1.65%. Abbott may be worth a second look on dips below $65/share.
Relevant Articles:
- My Entry Criteria for Dividend Stocks
- How to value dividend stocks
- Four Dividend Increases for Further Review
- Five Consumer Staples to Consider On Dips
Monday, December 9, 2019
Ten companies delivering value to their shareholders
A dividend increase shows a commitment to enhancing total shareholder returns through both strong business performance and returning cash to shareholders.
It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.
During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:
Ecolab Inc. (ECL) provides water, hygiene, and energy technologies and services worldwide. The company operates through Global Industrial, Global Institutional, Global Energy, and Other segments.
Ecolab raised its quarterly dividend by 2.20% to 47 cents/share. This marked the 28th year of annual dividend increases for this dividend champion. During the past decade, Ecolab has managed to hike distributions at an annualized rate of 12.20%.
Between 2008 and 2018, earnings grew from $1.80/share to $4.88/share. Ecolab is expect to earn $5.86/share in 2019.
The stock is overvalued at 31.80 times forward earnings and offers a low yield of 1%. Management cites an upcoming spin-off as the reason for this small dividend hike. I like the company, and so does Bill Gates. It would be nice to be able to initiate a position on dips below $120/share.
Universal Health Realty Income Trust (UHT) is a real estate investment trust. It invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers.
The REIT hiked its quarterly distributions by 0.70% to 68.50 cents/share. This was the second dividend increase over the past year, bringing the total for the year to 1.48%. This marked the 35th consecutive annual dividend increase for this dividend champion. During the past decade, this dividend champion has managed to grow distributions at an annualized rate of 1.40%.
Between 2009 and 2018, FFO/share has increased slightly from $2.80 to $3.28. That’s a very slow growth in distributions, coupled with a high FFO payout ratio of 83.50%.
Incidentally, when I analyzed this REIT in 2010, I didn’t mind the slow rate of distribution growth over the preceding decade, and the slightly higher FFO payout. I did like the low price to FFO ratio and the yield that was approaching 7%. After holding it for a few years, I sold it in 2013, and reinvested the proceeds in Digital Realty and Omega Healthcare, which seemed faster growing. Ironically, doing nothing would have resulted in a higher returns than doing the transaction. Go figure.
Unfortunately, today this REIT is overvalued at 37.20 times FFO and offers a dividend yield of 2.24%. I would like a better valuation before investing in a REIT like UHT.
WEC Energy Group, Inc., (WEC) provides regulated natural gas and electricity, and nonregulated renewable energy services in the United States. The company operates through six segments: Wisconsin, Illinois, Other States, Electric Transmission, Non-Utility Energy Infrastructure, and Corporate and Other.
The company increased its quarterly dividend by 7.20% to 63.25 cents/share. This marked the 17th year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 15.10%.
The company earned $1.52/share in 2008, and managed to grow the bottom line to $3.34/share by 2018.
WEC Energy Group is expected to generate $3.53/share in 2019. Earnings are expected to be in a range of $3.71 to $3.75 per share for 2020. The company's longer-term objective is to grow earnings per share at a 5 to 7 percent average annual rate, and target a dividend payout ratio of 65 to 70 percent of earnings.
The stock is overvalued at 24.1 times forward earnings and sells at dividend yield of 2.85%. If it dips below $74/share, it may be worth a second look.
Stryker Corporation (SYK) operates as a medical technology company. The company operates through three segments: Orthopedics, MedSurg, and Neurotechnology and Spine.
The company raised its quarterly dividend by 11% to 57.50 cents/share. This market the 27th year of annual dividend increases for this dividend champion. During the past decade Stryker has managed to grow distributions at an annualized rate of 19%.
Earnings rose from $2.78/share in 2008 to $9.34/share in 2018.
Stryker is expected to generate $8.23/share in 2019.
Just like other quality growth names, Stryker is selling for a premium 24.80 times forward earnings and offers a low yield of 1.15%.
The Toro Company (TTC) designs, manufactures, and markets professional and residential equipment worldwide.
The company raised its quarterly dividend by 11.10% to 25 cents/share. This marked the eleventh year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 18.20%/year.
Between 2008 and 2018, the company managed to grow earnings from 78 cents/share to $2.50/share
Toro is expected to generate $2.96/share in 2019.
The stock is overvalued at 26.60 times forward earnings and offers a low yield of 1.25%.
The Hanover Insurance Group, Inc. (THG) provides various property and casualty insurance products and services in the United States. The company operates in three segments: Commercial Lines, Personal Lines, and Other.
The company hiked its quarterly dividend by 8.30% to 65 cents/share. That was the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, this insurer has managed to boost distributions at an annualized rate of 17.30%.
As a result of its line of business, the earnings per share stream is volatile. Earnings rose from $3.86/share in 2009 to $9.09/share in 2018.
The Hanover Insurance Group is expected to generate $8.34/share in 2019.
The stock is selling for 16.30 times forward earnings and offers a well-covered dividend yield of 1.90%.
Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular, and fibrotic diseases.
The company raised its quarterly dividend by 9.80% to 45 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever.
Bristol-Myers Squibb earned $1.60/share in 2008, and managed to grow it to $3.03/share in 2018.
Bristol-Myers Squibb is expected to earn $3.50/share in 2019.
The stock is fairly valued at 17.10 times forward earnings and yields 3%.
C.H. Robinson Worldwide, Inc. (CHRW) is a third-party logistics company, that provides freight transportation services and logistics solutions to companies in various industries worldwide. The company operates through North American Surface Transportation and Global Forwarding segments.
The company hiked its distributions by 2% to 51 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.90%.
The company is expected to earn $4.44/share in 2019, and $4.38/share in 2020.
Hillenbrand, Inc. (HI) operates as a diversified industrial company in the United States and internationally. The company operates in two segments, Process Equipment Group and Batesville.
The company eked out a 1.20% increase in its quarterly dividend to 21.25 cents/share. The dividend increase is in line with the ten-year average. The company has managed to grow dividends annually since 2008. However, a lot of databases ignore the fact that Hillenbrand split into two companies in 2008. Prior to that, the company had a 35-year track record of annual dividend increases. This makes this company a dividend champion, and may also qualify it as a dividend king a few years from now.
Unfortunately, earnings have only increased from $1.66/share in 2009 to $1.92/share in 2019. It is no wonder that dividend growth is so anemic, given the slow rate of earnings growth. The company is expected to generate adjusted earnings of $2.53/share in 2020. Although it looks like earnings per share are finally expected to grow, in reality the adjusted figure has a lot of one-time items which may be of recurring nature. For reference, the 2019 adjusted earnings per share were at $2.45.
The stock is selling for 17.10 times earnings and yields 2.60%. Given the slow rate of growth, I do not view the current valuation as attractive enough.
Graco Inc. (GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide.
The company’s Board of Directors declared a quarterly dividend of 17.50 cents per share, which is a 9.40% increase over the previous quarterly distribution. This was the 23rd consecutive annual dividend increase for this dividend achiever. During the past decade Graco has managed to increase its quarterly distributions at an annualized rate of 7.90%/year.
Between 2008 and 2018, the company grew earnings from 66 cents/share to $1.97/share. The company is expected to generate $1.81/share.
The stock is overvalued at 27.20 times forward earnings and yields 1.40%.
Relevant Articles:
- Spring Cleaning My Income Portfolio, Part II
- Ten Companies Rewarding Investors With Dividend Hikes Last Week
- Warren Buffett’s Eight Billion Dollar Mistake
- Six Companies Rewarding Their Thankful Shareholders With a Raise
It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.
During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:
Ecolab Inc. (ECL) provides water, hygiene, and energy technologies and services worldwide. The company operates through Global Industrial, Global Institutional, Global Energy, and Other segments.
Ecolab raised its quarterly dividend by 2.20% to 47 cents/share. This marked the 28th year of annual dividend increases for this dividend champion. During the past decade, Ecolab has managed to hike distributions at an annualized rate of 12.20%.
Between 2008 and 2018, earnings grew from $1.80/share to $4.88/share. Ecolab is expect to earn $5.86/share in 2019.
The stock is overvalued at 31.80 times forward earnings and offers a low yield of 1%. Management cites an upcoming spin-off as the reason for this small dividend hike. I like the company, and so does Bill Gates. It would be nice to be able to initiate a position on dips below $120/share.
Universal Health Realty Income Trust (UHT) is a real estate investment trust. It invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers.
The REIT hiked its quarterly distributions by 0.70% to 68.50 cents/share. This was the second dividend increase over the past year, bringing the total for the year to 1.48%. This marked the 35th consecutive annual dividend increase for this dividend champion. During the past decade, this dividend champion has managed to grow distributions at an annualized rate of 1.40%.
Between 2009 and 2018, FFO/share has increased slightly from $2.80 to $3.28. That’s a very slow growth in distributions, coupled with a high FFO payout ratio of 83.50%.
Incidentally, when I analyzed this REIT in 2010, I didn’t mind the slow rate of distribution growth over the preceding decade, and the slightly higher FFO payout. I did like the low price to FFO ratio and the yield that was approaching 7%. After holding it for a few years, I sold it in 2013, and reinvested the proceeds in Digital Realty and Omega Healthcare, which seemed faster growing. Ironically, doing nothing would have resulted in a higher returns than doing the transaction. Go figure.
Unfortunately, today this REIT is overvalued at 37.20 times FFO and offers a dividend yield of 2.24%. I would like a better valuation before investing in a REIT like UHT.
WEC Energy Group, Inc., (WEC) provides regulated natural gas and electricity, and nonregulated renewable energy services in the United States. The company operates through six segments: Wisconsin, Illinois, Other States, Electric Transmission, Non-Utility Energy Infrastructure, and Corporate and Other.
The company increased its quarterly dividend by 7.20% to 63.25 cents/share. This marked the 17th year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 15.10%.
The company earned $1.52/share in 2008, and managed to grow the bottom line to $3.34/share by 2018.
WEC Energy Group is expected to generate $3.53/share in 2019. Earnings are expected to be in a range of $3.71 to $3.75 per share for 2020. The company's longer-term objective is to grow earnings per share at a 5 to 7 percent average annual rate, and target a dividend payout ratio of 65 to 70 percent of earnings.
The stock is overvalued at 24.1 times forward earnings and sells at dividend yield of 2.85%. If it dips below $74/share, it may be worth a second look.
Stryker Corporation (SYK) operates as a medical technology company. The company operates through three segments: Orthopedics, MedSurg, and Neurotechnology and Spine.
The company raised its quarterly dividend by 11% to 57.50 cents/share. This market the 27th year of annual dividend increases for this dividend champion. During the past decade Stryker has managed to grow distributions at an annualized rate of 19%.
Earnings rose from $2.78/share in 2008 to $9.34/share in 2018.
Stryker is expected to generate $8.23/share in 2019.
Just like other quality growth names, Stryker is selling for a premium 24.80 times forward earnings and offers a low yield of 1.15%.
The Toro Company (TTC) designs, manufactures, and markets professional and residential equipment worldwide.
The company raised its quarterly dividend by 11.10% to 25 cents/share. This marked the eleventh year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 18.20%/year.
Between 2008 and 2018, the company managed to grow earnings from 78 cents/share to $2.50/share
Toro is expected to generate $2.96/share in 2019.
The stock is overvalued at 26.60 times forward earnings and offers a low yield of 1.25%.
The Hanover Insurance Group, Inc. (THG) provides various property and casualty insurance products and services in the United States. The company operates in three segments: Commercial Lines, Personal Lines, and Other.
The company hiked its quarterly dividend by 8.30% to 65 cents/share. That was the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, this insurer has managed to boost distributions at an annualized rate of 17.30%.
As a result of its line of business, the earnings per share stream is volatile. Earnings rose from $3.86/share in 2009 to $9.09/share in 2018.
The Hanover Insurance Group is expected to generate $8.34/share in 2019.
The stock is selling for 16.30 times forward earnings and offers a well-covered dividend yield of 1.90%.
Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular, and fibrotic diseases.
The company raised its quarterly dividend by 9.80% to 45 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever.
Bristol-Myers Squibb earned $1.60/share in 2008, and managed to grow it to $3.03/share in 2018.
Bristol-Myers Squibb is expected to earn $3.50/share in 2019.
The stock is fairly valued at 17.10 times forward earnings and yields 3%.
C.H. Robinson Worldwide, Inc. (CHRW) is a third-party logistics company, that provides freight transportation services and logistics solutions to companies in various industries worldwide. The company operates through North American Surface Transportation and Global Forwarding segments.
The company hiked its distributions by 2% to 51 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.90%.
The company is expected to earn $4.44/share in 2019, and $4.38/share in 2020.
Hillenbrand, Inc. (HI) operates as a diversified industrial company in the United States and internationally. The company operates in two segments, Process Equipment Group and Batesville.
The company eked out a 1.20% increase in its quarterly dividend to 21.25 cents/share. The dividend increase is in line with the ten-year average. The company has managed to grow dividends annually since 2008. However, a lot of databases ignore the fact that Hillenbrand split into two companies in 2008. Prior to that, the company had a 35-year track record of annual dividend increases. This makes this company a dividend champion, and may also qualify it as a dividend king a few years from now.
Unfortunately, earnings have only increased from $1.66/share in 2009 to $1.92/share in 2019. It is no wonder that dividend growth is so anemic, given the slow rate of earnings growth. The company is expected to generate adjusted earnings of $2.53/share in 2020. Although it looks like earnings per share are finally expected to grow, in reality the adjusted figure has a lot of one-time items which may be of recurring nature. For reference, the 2019 adjusted earnings per share were at $2.45.
The stock is selling for 17.10 times earnings and yields 2.60%. Given the slow rate of growth, I do not view the current valuation as attractive enough.
Graco Inc. (GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide.
The company’s Board of Directors declared a quarterly dividend of 17.50 cents per share, which is a 9.40% increase over the previous quarterly distribution. This was the 23rd consecutive annual dividend increase for this dividend achiever. During the past decade Graco has managed to increase its quarterly distributions at an annualized rate of 7.90%/year.
Between 2008 and 2018, the company grew earnings from 66 cents/share to $1.97/share. The company is expected to generate $1.81/share.
The stock is overvalued at 27.20 times forward earnings and yields 1.40%.
Relevant Articles:
- Spring Cleaning My Income Portfolio, Part II
- Ten Companies Rewarding Investors With Dividend Hikes Last Week
- Warren Buffett’s Eight Billion Dollar Mistake
- Six Companies Rewarding Their Thankful Shareholders With a Raise
Thursday, December 5, 2019
Simon Property Group (SPG): A High Yield and High Risk REIT
Simon Property Group (SPG) is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations. Its properties across North America, Europe and Asia provide community gathering places for millions of people every day and generate billions in annual sales. I will analyze it using the guidelines for analyzing REITs that I have outlined before.
Simon Property Group has managed to increase dividends for 9 years in a row. The last dividend increase occurred in July 2019, when the Board of Directors increased the quarterly dividend to $2.10/share. This was a 5 cent increase over the prior dividend amount and a 5 percent increase over the distribution paid during the same time the previous year. If the streak of dividend increases continues, Simon may be able to join the elite group of 400 or so dividend contenders and dividend achievers. The REIT cut dividends in 2009 during the financial crisis, after raising them for about 8 years beforehand.
During the past decade, Simon Property Group has managed to increase dividends at an annualized rate of 8.80%. The historical rate of dividend growth seems favorable, even if we account for the dividend cut from 90 cents/share to 60 cents/share in 2009. It would be interesting to see how the dividend holds up, given the headwinds in the retail sector and malls/shopping centers.
Between 2008 and 2018, FFO/share has increased from $6.45/share to $12.13/share. Simon Property Group is expecting to generate FFO/share in 2019 in the $12 - $12.05/share range. The financial crisis resulted in a 20% decrease in FFO/share. I hope that management will not cut dividends during the next 20% decrease in FFO/share, even if the payout ratios are sustainable.
Developing new properties, raising rents and reducing costs are just a few ways in general to grow FFO/share. With the supposedly difficult environment for retail and malls, it is going to be difficult to grow by expanding too much. Another way to grow is by making acquisitions, which may result in synergies.
The company’s tenant base seems adequately diversified. It’s properties are also viewed as high quality, with average sales per square foot exceeding $650, and average rents hovering around 10 -12% of that figure.
Most retail malls have two types of tenants, anchor tenants and inline tenants. Anchor tenants are the key tenants with large stores and big names in the business. Anchor tenants attract other smaller tenants and customers to the mall. Smaller customers benefit from the traffic that anchor tenants draw to the mall. Anchor tenants pay lower rents and enter into long-term lease duration compared to inline tenants.
In Simon’s case, inline tenants pay anywhere between $50 to $65 per square foot. Anchor tenants pay around $4 to $8 per square foot.
Here is a listing of the top 10 inline lessees, which account for 17% of total revenues and 8.70% of square footage.
The largest anchor tenants are listed below:
These anchor stores account for 31% of square footage but less than 2% of total revenues. It is interesting to note that if these retailers fail, and the space can be re-leased to smaller stores, rental income may increase provided that foot traffic doesn’t materially decrease. After all, a major anchor retailer would fail due to lower foot traffic in the first place, that is not providing valuable foot traffic to the inline stores in the first place. Therefore, it may be a positive that the likes of Sears for example have failed. Using that space for other purposes could unlock hidden value potentially.
Decreasing interest rates have been a tailwind for Simon Property Group, as it has allowed the real estate investment trust to refinance to lower rates and to pick up projects at a lower cost of capital. The company has a conservative balance sheet, which is why it has enjoyed an advantage in cost of capital versus peers. It has a good credit rating, and debt maturities are staggered well.
Increasing investments abroad could be another potential tailwind, as is opening new centers or renewing leases or signing up tenants at higher rates. Redevelopments could also refresh properties, and result in an increase in traffic, rents and tenant interest.
The occupancy rates increased since the financial crisis until hitting a peak at 97% in 2014. Since then, occupancy rates have been somewhat steady around 95%. The financial crisis impacted everyone and the whole economy. The challenges ahead for REITs like Simon seem to be structural, due to changes in the way US consumers shop. The US retail market is overdeveloped, which may not bode well for future occupancy rates, at a time when shopping patterns change, and online becomes a bigger competitor from before.
The FFO payout declined from 55% in 2008 to 48% in 2011. This was due to a combination of dividends cuts and FFO declines. I do not believe the FFO Payout ratio was that aggressive in 2009, in order to cut the dividend. But management, perhaps due to high debt levels and in an effort to preserve liquidity decided to cut distributions at this time, even if they didn’t have to. Simon Property Group was one of the REITs that paid a large share of their distributions in the form of extra shares in the dark days of 2009, instead of providing cash to shareholders. They also resorted to selling stock at the time.
The FFO payout ratio has been increasing steadily from the lows in 2011 to around 65% in 2018. Based on forward FFO projections and the latest dividend increase, the forward FFO payout ratio is at 70%. While there is some margin of safety in the distributions, I do not think that high payouts are justified for companies like Simon. This is no Realty Income that operates under long-term triple-net leases. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth. I have believed that lack of earnings, or in this case FFO growth, could be a risky sign in terms of dividend safety.
The number of shares outstanding increased between 2008 and 2010, from 222 million to 291 million. This is one of the situations where shares were being given away at fire-sale prices when things were tough. Obviously, that is bad capital allocation. The number of shares outstanding ultimately peaked at 313 million in 2016, and have been going downwards very very slowly.
Simon Property Group is cheap today at a little over 12 times forward FFO/share and a juicy dividend yield of 5.60%. This is a good value in an environment where value is hard to find. Of course, the reason for the good valuation is that there is little FFO growth expected, and due to headwinds from the troubles of US retailers. There are some opportunities for growth, but also some opportunities for things to go wrong as well. You have to decide for yourself if the entry price justifies the risk you are taking, and if the potential return is sufficient to compensate for said risk. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth.
The situation does seem similar to Tanger (SKT), which also yielded 5% in 2017, but the stock was about to fall by 40%, while FFO/share and dividend growth flattened out. Of course, Tanger never cut dividends in its history, but both companies are connected to their founding families, which is usually a plus.
Relevant Articles:
- Tanger Factory Outlets (SKT) Dividend Stock Analysis
- Dividend Achievers versus Dividend Contenders & Champions
- Five Things to Look For in a Real Estate Investment Trust
- Twelve Companies Raising Dividends To Their Investors
Simon Property Group has managed to increase dividends for 9 years in a row. The last dividend increase occurred in July 2019, when the Board of Directors increased the quarterly dividend to $2.10/share. This was a 5 cent increase over the prior dividend amount and a 5 percent increase over the distribution paid during the same time the previous year. If the streak of dividend increases continues, Simon may be able to join the elite group of 400 or so dividend contenders and dividend achievers. The REIT cut dividends in 2009 during the financial crisis, after raising them for about 8 years beforehand.
During the past decade, Simon Property Group has managed to increase dividends at an annualized rate of 8.80%. The historical rate of dividend growth seems favorable, even if we account for the dividend cut from 90 cents/share to 60 cents/share in 2009. It would be interesting to see how the dividend holds up, given the headwinds in the retail sector and malls/shopping centers.
Between 2008 and 2018, FFO/share has increased from $6.45/share to $12.13/share. Simon Property Group is expecting to generate FFO/share in 2019 in the $12 - $12.05/share range. The financial crisis resulted in a 20% decrease in FFO/share. I hope that management will not cut dividends during the next 20% decrease in FFO/share, even if the payout ratios are sustainable.
Developing new properties, raising rents and reducing costs are just a few ways in general to grow FFO/share. With the supposedly difficult environment for retail and malls, it is going to be difficult to grow by expanding too much. Another way to grow is by making acquisitions, which may result in synergies.
The company’s tenant base seems adequately diversified. It’s properties are also viewed as high quality, with average sales per square foot exceeding $650, and average rents hovering around 10 -12% of that figure.
Most retail malls have two types of tenants, anchor tenants and inline tenants. Anchor tenants are the key tenants with large stores and big names in the business. Anchor tenants attract other smaller tenants and customers to the mall. Smaller customers benefit from the traffic that anchor tenants draw to the mall. Anchor tenants pay lower rents and enter into long-term lease duration compared to inline tenants.
In Simon’s case, inline tenants pay anywhere between $50 to $65 per square foot. Anchor tenants pay around $4 to $8 per square foot.
Here is a listing of the top 10 inline lessees, which account for 17% of total revenues and 8.70% of square footage.
The largest anchor tenants are listed below:
These anchor stores account for 31% of square footage but less than 2% of total revenues. It is interesting to note that if these retailers fail, and the space can be re-leased to smaller stores, rental income may increase provided that foot traffic doesn’t materially decrease. After all, a major anchor retailer would fail due to lower foot traffic in the first place, that is not providing valuable foot traffic to the inline stores in the first place. Therefore, it may be a positive that the likes of Sears for example have failed. Using that space for other purposes could unlock hidden value potentially.
Decreasing interest rates have been a tailwind for Simon Property Group, as it has allowed the real estate investment trust to refinance to lower rates and to pick up projects at a lower cost of capital. The company has a conservative balance sheet, which is why it has enjoyed an advantage in cost of capital versus peers. It has a good credit rating, and debt maturities are staggered well.
Increasing investments abroad could be another potential tailwind, as is opening new centers or renewing leases or signing up tenants at higher rates. Redevelopments could also refresh properties, and result in an increase in traffic, rents and tenant interest.
The occupancy rates increased since the financial crisis until hitting a peak at 97% in 2014. Since then, occupancy rates have been somewhat steady around 95%. The financial crisis impacted everyone and the whole economy. The challenges ahead for REITs like Simon seem to be structural, due to changes in the way US consumers shop. The US retail market is overdeveloped, which may not bode well for future occupancy rates, at a time when shopping patterns change, and online becomes a bigger competitor from before.
The FFO payout declined from 55% in 2008 to 48% in 2011. This was due to a combination of dividends cuts and FFO declines. I do not believe the FFO Payout ratio was that aggressive in 2009, in order to cut the dividend. But management, perhaps due to high debt levels and in an effort to preserve liquidity decided to cut distributions at this time, even if they didn’t have to. Simon Property Group was one of the REITs that paid a large share of their distributions in the form of extra shares in the dark days of 2009, instead of providing cash to shareholders. They also resorted to selling stock at the time.
The FFO payout ratio has been increasing steadily from the lows in 2011 to around 65% in 2018. Based on forward FFO projections and the latest dividend increase, the forward FFO payout ratio is at 70%. While there is some margin of safety in the distributions, I do not think that high payouts are justified for companies like Simon. This is no Realty Income that operates under long-term triple-net leases. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth. I have believed that lack of earnings, or in this case FFO growth, could be a risky sign in terms of dividend safety.
The number of shares outstanding increased between 2008 and 2010, from 222 million to 291 million. This is one of the situations where shares were being given away at fire-sale prices when things were tough. Obviously, that is bad capital allocation. The number of shares outstanding ultimately peaked at 313 million in 2016, and have been going downwards very very slowly.
Simon Property Group is cheap today at a little over 12 times forward FFO/share and a juicy dividend yield of 5.60%. This is a good value in an environment where value is hard to find. Of course, the reason for the good valuation is that there is little FFO growth expected, and due to headwinds from the troubles of US retailers. There are some opportunities for growth, but also some opportunities for things to go wrong as well. You have to decide for yourself if the entry price justifies the risk you are taking, and if the potential return is sufficient to compensate for said risk. FFO/share is not expected to grow for the near future, which means that there could be a natural ceiling to dividend growth.
The situation does seem similar to Tanger (SKT), which also yielded 5% in 2017, but the stock was about to fall by 40%, while FFO/share and dividend growth flattened out. Of course, Tanger never cut dividends in its history, but both companies are connected to their founding families, which is usually a plus.
Relevant Articles:
- Tanger Factory Outlets (SKT) Dividend Stock Analysis
- Dividend Achievers versus Dividend Contenders & Champions
- Five Things to Look For in a Real Estate Investment Trust
- Twelve Companies Raising Dividends To Their Investors
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