There were more than twenty companies which announced dividend hikes over the past week. In this article, I have outlined the companies which have managed to boost distributions for at least five years in a row. I have excluded companies which pay fluctuating dividends as well as companies which might have raised dividends for a few years in a row simply by accident. Past dividend growth is no guarantee of future success however. As a result I added a brief analysis after each consistent dividend stock.
The nine consistent dividend raisers from the past week include:
Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. This master limited partnership announced its plans to increase unitholder distributions to 65 cents/unit in the third quarter and 65 cents/unit in the fourth quarter of 2012. Enterprise Products Partners has raised distributions for 16 years in a row and yields a healthy 4.90%.
Few income stocks commit to boosting distributions for several quarters in a advance. Only a business with dependable cashflows could afford to accomplish this. The increase in distributions is supported by fee-based projects in Eagle Ford Shale in South Texas, which recently went online. In addition, the company also announced that a few other fee-generating assets are on schedule to start delivering revenues by the end of 2012. Check my analysis of this MLP.
McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. The company raised its quarterly dividend by 10% to 77 cents/share. This marked the 36th consecutive annual dividend increase for this dividend aristocrat. Yield: 3.30%
In general, the most recent dividend increase has been very similar to what I forecasted the company’s future annual dividend growth rate to be over the next few years. Analysts expect the Golden Arches to boost EPS by 7%/year for the next two years, from $5.27/share in 2011 to $6.03/share in 2013. As a result, future dividend increases in the 10% range could be easily supported by growth in business, reduction in share count and slight expansion in the dividend payout ratio. Check my analysis of McDonald’s.
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This REIT announced a slight distribution increase in its monthly dividends to $0.1514375 per share. This is an increase of 4.30% over the distribution paid this time last year. Realty Income has boosted distributions for 18 consecutive years, and was one of the few real estate investment trusts that didn’t cut dividends during the Financial Crisis. However, given the low yield of 4.40%, I view the stock as a hold. The weak distribution growth over the past five years, coupled with investor’s hunger for dividend yield, has pushed the stock above my buy point. However, I do like the intent to acquire American Realty Capital Trust (ARCT), which would generate additional FFO/share to increase distributions to $1.94/share after deal is closed. I would consider adding to my position at yields around 5%, but until then the stock is a hold for my income portfolio.
Microsoft Corporation (MSFT) develops, licenses, and supports software products and services; and designs and sells hardware worldwide. The company raised its quarterly distributions by 15% to 23 cents/share. This marked the eighth consecutive annual dividend increase for Microsoft. Yield: 3%
I like the fact that Microsoft is a virtual monopoly in the PC market with its Windows Operating system. When I previously analyzed the stock, I liked the valuation, potential for dividend growth and the company’s moat at present levels. However, I am still unsure of whether Microsoft will be able to maintain strong competitive position with software going forward, as an increasing number of users are switching from PC’s to Notebooks to Tablets. Moats are very difficult to maintain in the technology world, which is probably why I have been hesitant to add tech companies such as Microsoft (MSFT) and Intel (INTC) to my portfolio.
YUM! Brands, Inc. (YUM), together with its subsidiaries, operates as a quick service restaurant company in the United States and internationally. The company raised its quarterly distributions by 17.50% to 33.50 cents/share. This marked the ninth consecutive annual dividend increase for Yum! Brands. Yield: 2%
The company is expected to grow earnings from $2.74/share in 2011 to $3.73/share by 2013. Strong earnings growth will fuel double digit dividend increases at least by the end of the decade. Unfortunately, the stock is trading at more than 21 times earnings and only yields 2%. I was able to scoop some shares of this fast growing company a few years ago and would likely add to my position on any large dips in the stock price. I would add to my position if price falls to $54/share, or if the dividend goes up by 25% next year and price is unchanged from today’s levels I would likely be a buyer.
Texas Instruments Incorporated (TXN) engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company raised its quarterly distributions by 23.50% to 21 cents/share. This marked the ninth consecutive annual dividend increase for Texas Instruments. Yield: 2.90%
On the surface, Texas Instruments seems like a company with strong dividend growth, sustainable dividend payout and above average yield. In addition, the company would likely join the list of Dividend Achievers in 2013. However, investors who look closely at the numbers would realize that much of the dividend growth has been mostly due to expansion of the dividend payout ratio. Earnings have tended to be volatile, which means that future dividend growth above $1/share in annual dividends would be very difficult to achieve organically. In addition, it currently is trading at 21 times earnings. I find the stock to be a hold at current levels.
ConAgra Foods, Inc. (CAG) operates as a food company primarily in North America. The company operates through two segments, Consumer Foods and Commercial Foods. The company raised its quarterly dividend by 4.20% to 25 cents/share. This marked the 6th consecutive annual dividend increase for ConAgra. Yield: 3.60%
The company cut distributions in 2006, and has been increasing them very slowly since then. The trend in earnings per share has been erratic over the past decade, which led to the cut in 2006. I would continue monitoring the situation at ConAgra, but without any sustainable earnings growth over the next decade, the company might be unable to even achieve a dividend achiever status in four years.
Cracker Barrel Old Country Store, Inc. (CBRL), through its subsidiaries, engages in the development and operation of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. The company raised its quarterly dividend by 25% to 50 cents/share. The new rate also represents a 100% increase over last year’s distribution of 25 cents/share. Cracker Barrel has raised dividends for 10 years in a row. The company looks attractively valued, and seems to have an adequately covered dividend. I would consider adding it to my list for further research. Yield: 3%
The First of Long Island Corporation (FLIC) operates as a bank holding company for The First National Bank of Long Island that provides financial services. The company raised its quarterly dividend by 8.70% to 25 cents/share. This marked the 17th consecutive annual dividend increase for First of Long Island Corporation. This bank has managed to quietly double EPS over the past decade, while raising distribuions by 13.40%/year on average over the same time period. I would consider adding it to my list for further research. Yield: 3.20%
Full Disclosure: Long EPD, MCD, YUM, O
Relevant Articles:
- Enterprise Products Partners (EPD): A Pipeline Cash Machine
- McDonald’s (MCD) Dividend Stock Analysis 2012
- Dividend Aristocrats List for 2012
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
Monday, September 24, 2012
Friday, September 21, 2012
Walgreen (WAG) Dividend Stock Analysis 2012
Walgreen Co. (WAG), together with its subsidiaries, operates a chain of drugstores in the United States. The company is a member of the dividend aristocrats index, has paid dividends since 1933 and increased them for 37 years in a row.
The company’s last dividend increase was in July 2012 when the Board of Directors approved a 22.20% increase to 27.50 cents/share. The company’s largest competitors include CVS Caremark (CVS), Rite Aid (RAD) and Wal-Mart Stores (WMT).
Over the past decade this dividend growth stock has delivered an annualized total return of 1.50% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 12.90% per year. Analysts expect Walgreen Co. to earn $2.60 per share in 2012 and $3.03 per share in 2013. In comparison Walgreen earned $2.94/share in 2011.
The company has consistently repurchased stock over the past 7 years, reducing its share count from 1,025 million shares in 2004 to 865 million in 2012.
One of the major headwinds that Walgreen was facing was that it stopped filling prescriptions for Express Scripts, which accounted for a large amount of sales. Express Scripts has since merged with Medco, forming one of the country’s largest Pharmacy Benefit Managers. The risk that Walgreen faced is that other Pharmacy Benefit Manager companies might try to squeeze it, which could further depress margins and earnings. However, recently it had signed an agreement with the company, which also alleviated concerns about Walgreen’s upcoming renewal with Medco. The issue with this deal is that Walgreen lost a lot of customers. Pharmacy customers tend to be loyal, and do not like to switch prescription providers easily.
Now that these concerns are alleviated, Walgreen also focused on acquisitions. It is in the process of acquiring a 45% interest in Alliance Boots, an international pharmacy and wholesale operator, for $6.7 billion in cash and stock. The $6.7 billion is broken into $4 billion in cash and 83.4 WAG million shares. Walgreens also has the option to acquire the remaining 55% of Alliance Boots in three years. The company expects synergies of $100 - $150 million would be realized from this deal in year one, rising to $1 billion by 2016.
Walgreens expects to increase comparable stores count by 2.50% – 3%. Store renovations, improving the product mix, and increasing inventory efficiency will add to profitability, as will realizing synergies from acquisitions such as the Duane Reade one. The company’s integration of Drugstore.com, will pave the way for expanding the company’s web presence.
The return on equity has remained stuck in range between 17% and 19% over the past decade, with the exception of a brief decrease below 15% in 2009 and 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 18.90% per year over the past decade, which is higher than the growth in EPS.
A 12.90% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1986 we see that Walgreen’s has actually managed to double its dividend every five years on average.
The dividend payout ratio has almost doubled from 15% in 2002 to 25.50 in 2012. 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, Walgreen is attractively valued at 12.30 times earnings, has an adequately covered dividend and yields 3%. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: Long WAG and WMT
Relevant Articles:
- Seven Stocks Boosting Investor Payouts
- 17 Cheap Dividend Aristocrats on Sale
- Dividend Growth Stocks by Sector - Retail
- Dividend Aristocrats List for 2012
The company’s last dividend increase was in July 2012 when the Board of Directors approved a 22.20% increase to 27.50 cents/share. The company’s largest competitors include CVS Caremark (CVS), Rite Aid (RAD) and Wal-Mart Stores (WMT).
Over the past decade this dividend growth stock has delivered an annualized total return of 1.50% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 12.90% per year. Analysts expect Walgreen Co. to earn $2.60 per share in 2012 and $3.03 per share in 2013. In comparison Walgreen earned $2.94/share in 2011.
The company has consistently repurchased stock over the past 7 years, reducing its share count from 1,025 million shares in 2004 to 865 million in 2012.
One of the major headwinds that Walgreen was facing was that it stopped filling prescriptions for Express Scripts, which accounted for a large amount of sales. Express Scripts has since merged with Medco, forming one of the country’s largest Pharmacy Benefit Managers. The risk that Walgreen faced is that other Pharmacy Benefit Manager companies might try to squeeze it, which could further depress margins and earnings. However, recently it had signed an agreement with the company, which also alleviated concerns about Walgreen’s upcoming renewal with Medco. The issue with this deal is that Walgreen lost a lot of customers. Pharmacy customers tend to be loyal, and do not like to switch prescription providers easily.
Now that these concerns are alleviated, Walgreen also focused on acquisitions. It is in the process of acquiring a 45% interest in Alliance Boots, an international pharmacy and wholesale operator, for $6.7 billion in cash and stock. The $6.7 billion is broken into $4 billion in cash and 83.4 WAG million shares. Walgreens also has the option to acquire the remaining 55% of Alliance Boots in three years. The company expects synergies of $100 - $150 million would be realized from this deal in year one, rising to $1 billion by 2016.
Walgreens expects to increase comparable stores count by 2.50% – 3%. Store renovations, improving the product mix, and increasing inventory efficiency will add to profitability, as will realizing synergies from acquisitions such as the Duane Reade one. The company’s integration of Drugstore.com, will pave the way for expanding the company’s web presence.
The return on equity has remained stuck in range between 17% and 19% over the past decade, with the exception of a brief decrease below 15% in 2009 and 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 18.90% per year over the past decade, which is higher than the growth in EPS.
A 12.90% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1986 we see that Walgreen’s has actually managed to double its dividend every five years on average.
The dividend payout ratio has almost doubled from 15% in 2002 to 25.50 in 2012. 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, Walgreen is attractively valued at 12.30 times earnings, has an adequately covered dividend and yields 3%. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: Long WAG and WMT
Relevant Articles:
- Seven Stocks Boosting Investor Payouts
- 17 Cheap Dividend Aristocrats on Sale
- Dividend Growth Stocks by Sector - Retail
- Dividend Aristocrats List for 2012
Wednesday, September 19, 2012
Money Management for Dividend Investors
Most dividend investors spend a large portion of their time looking for the perfect dividend stocks, analyzing fundamentals and deciding whether companies have the sustainable economic advantages to continue raising distributions in the long run. Identifying the best dividend stocks and worrying about entry price is just a part of successful dividend investing. Investors should also focus on diversification, in order to ensure that they do not have a major part of their income coming from just a handful of income stocks.
Investors who own a portfolio of income stocks, where a large portion of distributions comes from a handful of stocks could suffer if these securities or the sector they are in experience some turbulence. Financial stocks were some of dividend investor’s favorites before the crisis of 2007 – 2009. Investors who derived a large chunk of their income from financial stocks saw their dividend income decrease sharply, even if they had allocation to other companies which raised distributions during this dark period for income investors. As a result, dividend investors should focus on sound portfolio or money management, in order to avoid drastic dividend reductions from just a handful of income stocks they own.
There are several ways that dividend investors use money management in their portfolio building processes. Two methods include weighing your positions by yield or attempting to equal weight your positions. Both methods have advantages as well as shortcomings. There are other methods for weighing individual positions in a dividend portfolio, but the two previously mentioned ones are the most common ones in my discussions with dividend investors.
With equal weighted portfolios, investors have adequate diversification in the their portfolio as well as their distribution incomes. As a result, if one or two positions cut dividends in a given year, the overall impact on annual dividend income would not be detrimental. The negative of equal dividend weighting is that sometimes it would be difficult for investors to maintain the equal weighting for all of their positions, especially since stocks go up and down in value all the time.
Some investors also weight their portfolios based on yield. As a result, companies with high dividends get a higher proportion of the portfolio, which leads to higher current yields. Many companies have higher yields when their stock prices are depressed. Other companies of such sectors as utilities, REITs and MLPs have traditionally paid higher than average dividend yields. The risk of weighting portfolios based on yield is that investors would end up being concentrated in just a handful of high yielding sectors, which could make a portfolio riskier than expected. In addition, an overrepresentation of higher yielding stocks could offer a big blow to total dividend income if these income stocks have unsustainable distributions and end up cutting or eliminating entirely their fat distributions. During the financial crisis, investors who had a higher allocation to high yielding Financials and REITs that cut dividends, suffered huge blows to their dividend incomes. The goal of successful dividend investing is to keep receiving a stable dividend income, and not having to go back to work.
I typically attempt to weigh my positions equally, as long as the underlying valuations make sense. I own more than 40 individual issues in my dividend portfolio, which have been accumulated over a very long period of time. As a result, less than half of the positions I own are underrepresented. This is because I would sometimes purchase shares in a company that temporarily become undervalued. After that the shares would increase in value, making the stock overvalued. As a result I would not increase my position for many years, yet I would keep the stock as long as the dividend is maintained or increased. For example, my position in Family Dollar (FDO) was purchased a few years ago when the stock was trading at much lower valuations than today and was offering a much higher yield. Because I find the stock to be relatively overvalued I have not really added to it in years. This means that it’s relative proportion in my income portfolio has been decreasing over time, especially since I add money to work every month.
I would however attempt to keep companies that are attractively valued currently at close to equal dollar values. For example, let’s look at a situation where I owned $5,000 worth of Phillip Morris International (PM), and I had a $3000 position in PepsiCo (PEP). Let’s assume that I found PepsiCo (PEP) to be attractively valued. I would try to add to my PepsiCo position until I own $5000 worth of PepsiCo (PEP) stock. Currently, the top 30 stocks in my portfolio by weight account for 86% of my total portfolio value. I find 24 of them to be attractive enough to attract new funds from me this year.
Currently, I find both Phillip Morris International (PM) and PepsiCo (PEP) to be attractively valued. In addition I also find United Technologies (UTX) and Kimberly-Clark (KMB) to be priced within my buy range, and I have added to my positions in both stocks over the past month. Unfortunately, my portfolio is already overweight in both PepsiCo(PEP)and Phillip Morris International (PM), which is why I would not be able to add money there for a period ranging from six to twelve months.
United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. This dividend achiever has raised distributions for 19 years in a row. Over the past decade, United Technologies has managed to boost distributions by 15.30%/year. The company trades at 17.30 times earnings, yields 2.70% and has a sustainable distribution coverage. Check my analysis of the stock.
Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in manufacturing and marketing health care products worldwide. This dividend aristocrat has raised distributions for 40 years in a row. Over the past decade, Kimberly-Clark has managed to boost distributions by 9.70%/year. The company trades at 18.20 times earnings, yields 3.60% and has a sustainable distribution coverage. Check my analysis of the stock.
Full Disclosure: Long PEP, PM, FDO
Relevant Articles:
- Is your dividend income riskier than expected?
- Natural Selection in Dividend Portfolios
- A dividend portfolio for the long-term
- Dividend Portfolios – concentrate or diversify?
This article was featured in Nerdy Finance #9: We’re Back!
Investors who own a portfolio of income stocks, where a large portion of distributions comes from a handful of stocks could suffer if these securities or the sector they are in experience some turbulence. Financial stocks were some of dividend investor’s favorites before the crisis of 2007 – 2009. Investors who derived a large chunk of their income from financial stocks saw their dividend income decrease sharply, even if they had allocation to other companies which raised distributions during this dark period for income investors. As a result, dividend investors should focus on sound portfolio or money management, in order to avoid drastic dividend reductions from just a handful of income stocks they own.
There are several ways that dividend investors use money management in their portfolio building processes. Two methods include weighing your positions by yield or attempting to equal weight your positions. Both methods have advantages as well as shortcomings. There are other methods for weighing individual positions in a dividend portfolio, but the two previously mentioned ones are the most common ones in my discussions with dividend investors.
With equal weighted portfolios, investors have adequate diversification in the their portfolio as well as their distribution incomes. As a result, if one or two positions cut dividends in a given year, the overall impact on annual dividend income would not be detrimental. The negative of equal dividend weighting is that sometimes it would be difficult for investors to maintain the equal weighting for all of their positions, especially since stocks go up and down in value all the time.
Some investors also weight their portfolios based on yield. As a result, companies with high dividends get a higher proportion of the portfolio, which leads to higher current yields. Many companies have higher yields when their stock prices are depressed. Other companies of such sectors as utilities, REITs and MLPs have traditionally paid higher than average dividend yields. The risk of weighting portfolios based on yield is that investors would end up being concentrated in just a handful of high yielding sectors, which could make a portfolio riskier than expected. In addition, an overrepresentation of higher yielding stocks could offer a big blow to total dividend income if these income stocks have unsustainable distributions and end up cutting or eliminating entirely their fat distributions. During the financial crisis, investors who had a higher allocation to high yielding Financials and REITs that cut dividends, suffered huge blows to their dividend incomes. The goal of successful dividend investing is to keep receiving a stable dividend income, and not having to go back to work.
I typically attempt to weigh my positions equally, as long as the underlying valuations make sense. I own more than 40 individual issues in my dividend portfolio, which have been accumulated over a very long period of time. As a result, less than half of the positions I own are underrepresented. This is because I would sometimes purchase shares in a company that temporarily become undervalued. After that the shares would increase in value, making the stock overvalued. As a result I would not increase my position for many years, yet I would keep the stock as long as the dividend is maintained or increased. For example, my position in Family Dollar (FDO) was purchased a few years ago when the stock was trading at much lower valuations than today and was offering a much higher yield. Because I find the stock to be relatively overvalued I have not really added to it in years. This means that it’s relative proportion in my income portfolio has been decreasing over time, especially since I add money to work every month.
I would however attempt to keep companies that are attractively valued currently at close to equal dollar values. For example, let’s look at a situation where I owned $5,000 worth of Phillip Morris International (PM), and I had a $3000 position in PepsiCo (PEP). Let’s assume that I found PepsiCo (PEP) to be attractively valued. I would try to add to my PepsiCo position until I own $5000 worth of PepsiCo (PEP) stock. Currently, the top 30 stocks in my portfolio by weight account for 86% of my total portfolio value. I find 24 of them to be attractive enough to attract new funds from me this year.
Currently, I find both Phillip Morris International (PM) and PepsiCo (PEP) to be attractively valued. In addition I also find United Technologies (UTX) and Kimberly-Clark (KMB) to be priced within my buy range, and I have added to my positions in both stocks over the past month. Unfortunately, my portfolio is already overweight in both PepsiCo(PEP)and Phillip Morris International (PM), which is why I would not be able to add money there for a period ranging from six to twelve months.
United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. This dividend achiever has raised distributions for 19 years in a row. Over the past decade, United Technologies has managed to boost distributions by 15.30%/year. The company trades at 17.30 times earnings, yields 2.70% and has a sustainable distribution coverage. Check my analysis of the stock.
Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in manufacturing and marketing health care products worldwide. This dividend aristocrat has raised distributions for 40 years in a row. Over the past decade, Kimberly-Clark has managed to boost distributions by 9.70%/year. The company trades at 18.20 times earnings, yields 3.60% and has a sustainable distribution coverage. Check my analysis of the stock.
Full Disclosure: Long PEP, PM, FDO
Relevant Articles:
- Is your dividend income riskier than expected?
- Natural Selection in Dividend Portfolios
- A dividend portfolio for the long-term
- Dividend Portfolios – concentrate or diversify?
This article was featured in Nerdy Finance #9: We’re Back!
Monday, September 17, 2012
Phillip Morris International Delivers a Fifth Consecutive Dividend Hike
The past week was characterized by very slow dividend increase activity. However, it was not slow if you were a shareholder of Phillip Morris International, which manufactures and sells cigarettes and other tobacco products. The company raised its quarterly dividend by 10.40% to 85 cents/share. This marked the fifth consecutive annual dividend increase for this global tobacco conglomerate. Check my recent analysis of the stock.
The average annual dividend increase over the past five years has been 13.20%. In addition, the company spends aggressively on stock buybacks. The number of outstanding shares has been reduced from 2.062 billion in 2008 to 1.701 billion in 2012.Back in June 2012 the company announced a 3 year stock buyback program, worth $18 billion.
Based on expected 2012 earnings of $5.18/share, the forward dividend payout ratio stands at 65%, which is sustainable. The company is also estimated to earn 11% more per share in 2013, which would likely translate into a quarterly dividend payment of 94 cents/share by the end of 2013. The expected EPS in 2013 is double what the EPS was in 2007 of $2.87/share. I find the stock attractively valued at 17.30 times earnings, yielding 3.80% and having a sustainable dividend payout ratio. Since Phillip Morris International is my largest position, I would likely not have the opportunity to add to it for several months. However, I like the long term economics of PMI’s business, and the prospects for earnings growth of around 10%-12%/year for the foreseeable future.
There are a few risks that investors in Phillip Morris International face. The largest challenge includes stricter regulatory environment in most developed countries that PMI operates in. The recent introduction of plain packaging for cigarettes sold in Australia would likely hurt competition, as companies like PMI would have a hard time differentiating their products based on strong brands and quality of products. Luckily, there aren’t any countries that seem likely to embrace a similar approach to Australia at least in the next five years or so. In addition, since PMI operates in so many countries worldwide, chances are that set-backs in one country would be more than offset against gains in other places.
Atlantic Tele-Network, Inc. (ATNI), through its subsidiaries, provides wireless and wire line telecommunications services in North America, Bermuda, and the Caribbean. The company raised its quarterly dividend by 8.70% to 25 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Atlantic Tele-Network looks attractively valued at 18 times earnings, yields 2.50% and has an adequately covered distribution. I like the fact that the company has managed to boost earnings and distributions over the past decade. I would add the stock to my list for further analysis.
The other company raising distributions included The Kroger Co. (KR), which operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. The company raised its quarterly dividend by 30.40% to 15 cents/share. This marked the seventh consecutive annual dividend increase for the company. Yield: 2.50%
Kroger boasts a five year dividend growth rate of 17%/year. After a nearly 18 year hiatus, Kroger started paying dividends in 2006. The company had been a consistent dividend raiser until 1988, when it took out a large loan and issued a large cash dividend to investors in order to fend off potential acquirers. Over the past decade, Kroger has been unable to grow earnings per share, despite repurchasing over a quarter of outstanding shares during the period. Without earnings growth, future dividend growth is limited.
Full Disclosure: Long PM
Relevant Articles:
- Philip Morris International (PM) Dividend Stock Analysis
- My Entry Criteria for Dividend Stocks
- Dividends versus Share Buybacks/Stock repurchases
- Three Companies expecting high dividend growth and returns
The average annual dividend increase over the past five years has been 13.20%. In addition, the company spends aggressively on stock buybacks. The number of outstanding shares has been reduced from 2.062 billion in 2008 to 1.701 billion in 2012.Back in June 2012 the company announced a 3 year stock buyback program, worth $18 billion.
Based on expected 2012 earnings of $5.18/share, the forward dividend payout ratio stands at 65%, which is sustainable. The company is also estimated to earn 11% more per share in 2013, which would likely translate into a quarterly dividend payment of 94 cents/share by the end of 2013. The expected EPS in 2013 is double what the EPS was in 2007 of $2.87/share. I find the stock attractively valued at 17.30 times earnings, yielding 3.80% and having a sustainable dividend payout ratio. Since Phillip Morris International is my largest position, I would likely not have the opportunity to add to it for several months. However, I like the long term economics of PMI’s business, and the prospects for earnings growth of around 10%-12%/year for the foreseeable future.
There are a few risks that investors in Phillip Morris International face. The largest challenge includes stricter regulatory environment in most developed countries that PMI operates in. The recent introduction of plain packaging for cigarettes sold in Australia would likely hurt competition, as companies like PMI would have a hard time differentiating their products based on strong brands and quality of products. Luckily, there aren’t any countries that seem likely to embrace a similar approach to Australia at least in the next five years or so. In addition, since PMI operates in so many countries worldwide, chances are that set-backs in one country would be more than offset against gains in other places.
Atlantic Tele-Network, Inc. (ATNI), through its subsidiaries, provides wireless and wire line telecommunications services in North America, Bermuda, and the Caribbean. The company raised its quarterly dividend by 8.70% to 25 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Atlantic Tele-Network looks attractively valued at 18 times earnings, yields 2.50% and has an adequately covered distribution. I like the fact that the company has managed to boost earnings and distributions over the past decade. I would add the stock to my list for further analysis.
The other company raising distributions included The Kroger Co. (KR), which operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. The company raised its quarterly dividend by 30.40% to 15 cents/share. This marked the seventh consecutive annual dividend increase for the company. Yield: 2.50%
Kroger boasts a five year dividend growth rate of 17%/year. After a nearly 18 year hiatus, Kroger started paying dividends in 2006. The company had been a consistent dividend raiser until 1988, when it took out a large loan and issued a large cash dividend to investors in order to fend off potential acquirers. Over the past decade, Kroger has been unable to grow earnings per share, despite repurchasing over a quarter of outstanding shares during the period. Without earnings growth, future dividend growth is limited.
Full Disclosure: Long PM
Relevant Articles:
- Philip Morris International (PM) Dividend Stock Analysis
- My Entry Criteria for Dividend Stocks
- Dividends versus Share Buybacks/Stock repurchases
- Three Companies expecting high dividend growth and returns
Friday, September 14, 2012
Illinois Tool Works (ITW) Dividend Stock Analysis 2012
Illinois Tool Works Inc. (ITW) manufactures various industrial products and equipment worldwide. The company is a member of the dividend aristocrats index, has paid dividends since 1933 and increased them for 49 years in a row.
The company’s last dividend increase was in July 2012 when the Board of Directors approved an 6% increase to 38 cents/share. The company’s largest competitors include General Electric (GE), Cooper Industries (CBE) and Manitowoc (MTW).
Over the past decade this dividend growth stock has delivered an annualized total return of 7.40% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 11.70% per year. Analysts expect Illinois Tool Works to earn $4.14 per share in 2012 and $4.53 per share in 2013. In comparison Illinois Tool Works earned $4.08/share in 2011.
Over 60% of company’s revenues are derived internationally. Over time, Illinois Tool Works expects that increased sales from developing markets such as Brazil, China and India will lead to higher profitability in the long run. Other drivers behind growth include the ability of the company to innovate as well to keep focusing on the areas which derive maximum value to customers. Continued streamlining of operations should reduce waste in the system, and reduce costs. Strategic sourcing , aiming to lower costs for materials as well as the continued focus on divesting non core assets, should further drive profitability for ITW over the next decade. By focusing on consistent stock buybacks as well, Illinois Tool Works should also be able to increase EPS over time. Over the past decade, the company reduced the amount of shares outstandin from 613 million in 2002 to 483 million in 2011.
The return on equity has closely followed the rise and fall of the economy throughout various economic cycles. This indicator rose between 2002 and 2006, declined between 2007 – 2009 and has been increasing ever since 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 12.90% per year over the past decade, which is slightlyhigher than to the growth in EPS.
A 12.90% growth in distributions translates into the dividend payment doubling every five and a half years. If we look at historical data, going as far back as 1990 we see that Illinois Tool Works has actually managed to double its dividend every five years on average.
The dividend payout ratio has remained around 30% over the past decade, with the exception of a brief spike between 2008 – 2010 due to the recession. 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, Illinois Tool Works is attractively valued at 12.80 times earnings, has an adequately covered dividend and yields 2.50%. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: Long ITW
Relevant Articles:
- Dividend Aristocrats List for 2012
- 17 Cheap Dividend Aristocrats on Sale
- A dividend portfolio for the long-term
- My Entry Criteria for Dividend Stocks
The company’s last dividend increase was in July 2012 when the Board of Directors approved an 6% increase to 38 cents/share. The company’s largest competitors include General Electric (GE), Cooper Industries (CBE) and Manitowoc (MTW).
Over the past decade this dividend growth stock has delivered an annualized total return of 7.40% to its shareholders.
The company has managed to an impressive increase in annual EPS growth since 2002. Earnings per share have risen by 11.70% per year. Analysts expect Illinois Tool Works to earn $4.14 per share in 2012 and $4.53 per share in 2013. In comparison Illinois Tool Works earned $4.08/share in 2011.
Over 60% of company’s revenues are derived internationally. Over time, Illinois Tool Works expects that increased sales from developing markets such as Brazil, China and India will lead to higher profitability in the long run. Other drivers behind growth include the ability of the company to innovate as well to keep focusing on the areas which derive maximum value to customers. Continued streamlining of operations should reduce waste in the system, and reduce costs. Strategic sourcing , aiming to lower costs for materials as well as the continued focus on divesting non core assets, should further drive profitability for ITW over the next decade. By focusing on consistent stock buybacks as well, Illinois Tool Works should also be able to increase EPS over time. Over the past decade, the company reduced the amount of shares outstandin from 613 million in 2002 to 483 million in 2011.
The return on equity has closely followed the rise and fall of the economy throughout various economic cycles. This indicator rose between 2002 and 2006, declined between 2007 – 2009 and has been increasing ever since 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 12.90% per year over the past decade, which is slightlyhigher than to the growth in EPS.
A 12.90% growth in distributions translates into the dividend payment doubling every five and a half years. If we look at historical data, going as far back as 1990 we see that Illinois Tool Works has actually managed to double its dividend every five years on average.
The dividend payout ratio has remained around 30% over the past decade, with the exception of a brief spike between 2008 – 2010 due to the recession. 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, Illinois Tool Works is attractively valued at 12.80 times earnings, has an adequately covered dividend and yields 2.50%. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: Long ITW
Relevant Articles:
- Dividend Aristocrats List for 2012
- 17 Cheap Dividend Aristocrats on Sale
- A dividend portfolio for the long-term
- My Entry Criteria for Dividend Stocks
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