Five Dividend Growth Stocks Rewarding Shareholders With Raises

As part of my monitoring process, I review the list of dividend increases every week This activity helps me to monitor the business performance of any companies I am invested in. It also helps me to identify any hidden dividend gems, and place them on my list for further research.

My reviews are an example of the quick way I use to evaluate companies, before deciding if they are worth a second look later or not.

The companies in today’s article have managed to grow dividends for at least ten years in a row. These companies also announced a dividend increase during the past week. The companies include:

PPG Industries, Inc. (PPG) manufactures and distributes paints, coatings, and specialty materials worldwide.

The company raised its quarterly dividend by 6% to 54 cents/share. This marked the 49th year of consecutive annual dividend increases for this dividend champion. PPG Industries has managed to grow dividends at an annualized rate of 6.40% over the past decade.

Between 2010 and 2019, PPG Industries managed to grow earnings from $2.31/share to $5.22/share.
The company is expected to generate $4.44/share in 2020

The stock sells for 24 times forward earnings and yields 1.95%.

Computer Services, Inc. (CSVI) delivers core processing, digital banking, managed services, payments processing, print and electronic distribution, and regulatory compliance solutions to financial institutions and corporate entities in the United States.

The company raised its quarterly dividend by 19.10% to 25 cents/share. According to their press release, this marked the 49th year of consecutive annual dividend increases for the company. Sadly, I have not been able to verify this with any other independent source. I see that the stock has been publicly traded since 2003, hence I have to use this data as a starting point for the dividend record. If the stock was privately held before, the record of annual dividend increases before that doesn’t count.
If I find reliable data showing that the record started 49 years ago, I would update my stance on the topic.

Computer Services has managed to grow dividends at an annualized rate of 15.80% over the past decade.

Between 2010 and 2019, Computer Services managed to boost earnings from 81 cents/share to $1.91/share.

The stock sells for 27 times forward earnings and offers a dividend yield of 1.90%.

National Retail Properties (NNN) invests primarily in high-quality retail properties subject generally to long-term, net leases.

This real estate investment trust raised its quarterly dividend by 1% to 52 cents/share. This marked 31 years of consecutive annual dividend increases for this dividend champion.

The company has raised dividends by 3.10%/year annualized over the past decade.

Over the past decade, National Retail Properties has managed to boost its AFFO/share from $1.73 in 2009 to $2.79 in 2019.

The REIT is selling for 13.35 times forward FFO and yields 5.85%.

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

The company raised its quarterly dividend by 1.40% to 70 cents/share. This marked the 53th consecutive annual dividend increase for this dividend king. This dividend king has managed to boost distributions at an annualized rate of 7.60% over the past decade.

The company managed to boost earnings from $2.79/share in 2009 to $6.35/share in 2019.
The company is expected to earn $5.73/share in 2020.

The stock is selling for 25.10 times forward earnings and offers a dividend yield of 1.85%.

Marsh & McLennan Companies, Inc. (MMC) is a professional services company that provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. It operates in two segments, Risk and Insurance Services, and Consulting.

The company increased its quarterly dividend by 2.20% to 46.50 cents/share. Marsh & McLennan has managed to grow dividends at an annualized rate of 8.10% over the past decade.
Earnings increased from $1.55/share in 2010 to $3.41/share in 2019.

The company is expected to generate $4.60/share in 2020.

The stock sells at 24.65 times forward earnings and yields 1.65%.

MGE Energy, Inc. (MGEE) operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other.

MGE Energy raised its quarterly dividend by 5% to 37 cents/share. This event marked the company's 45th consecutive year of increasing its dividend. MGE Energy is a dividend champion which has managed to grow dividends at an annualized rate of 3.60% during the past decade.

MGE Energy managed to grow earnings from $1.67/share in 2010 to $2.51/share in 2019.

The stock looks richly valued at 26.50 times forward earnings. It yields 2.20%.

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Wells Fargo Cuts Dividends by 80% to 10 cents/share

This morning Wells Fargo cut dividends by 80%, from 51 cents/share to 10 cents/share. This was not a surprise, since the bank stated that they would be cutting dividends on June 29th.

I shared this information on the blog on June 30th - "Simon Property Group (SPG) and Wells Fargo (WFC) to cut dividends"

While we didn't know at the time how big the dividend cut would be, we only knew that there would be a dividend cut.

Back at the end of June, the Federal Reserve initiated a new round of stress tests, which capped dividend payments at major financial institutions. I discussed this with you right when I posted an article: Expect Dividend Cuts and Dividend Freezes in the Banking Sector

"For the third quarter of this year, the Board is requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. The Board is also requiring banks to re-evaluate their longer-term capital plans.

All large banks will be required to resubmit and update their capital plans later this year to reflect current stresses, which will help firms re-assess their capital needs and maintain strong capital planning practices during this period of uncertainty. The Board will conduct additional analysis each quarter to determine if adjustments to this response are appropriate.

During the third quarter, no share repurchases will be permitted. In recent years, share repurchases have represented approximately 70 percent of shareholder payouts from large banks. The Board is also capping dividend payments to the amount paid in the second quarter and is further limiting them to an amount based on recent earnings. As a result, a bank cannot increase its dividend and can pay dividends if it has earned sufficient income."

There were several banks that went through these stress tests, but almost all of them managed to keep their dividends unchanged.

The only bank to cut dividends was Wells Fargo (WFC). Again, the bank announced that on June 29th that they would be announcing a dividend cut when they reported their results on July 14th.

Our friends at Dripinvesting shared this chart comparing the average bank earnings to the dividend payouts. Wells Fargo looks like the only bank where the dividends exceeded its estimated average net income.


Source: Drip Investing/FactSet

Today, they reported their results, and cut dividends from 51 cents/share to 10 cents/share. The stock sold off, perhaps due to the poor quarterly results. In reality, the announcement of a dividend cut in advance, when everyone else is keeping their dividends should have been enough of a warning sign to prompt investors to re-evaluate their positions.

Chief Executive Officer Charlie Scharf said, “We are extremely disappointed in both our second quarter results and our intent to reduce our dividend. Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter, which drove the $8.4 billion addition to our credit loss reserve in the second quarter. While the negative impact of the pandemic is unprecedented and many of our business drivers were negatively impacted, our franchise should perform better, and we will make changes to improve our
performance regardless of the operating environment.

“Though our income performance was weak, our capital and liquidity continues to be extremely strong with both our CET1 ratio and LCR increasing from the end of the prior quarter. However, it is critical in these uncertain times that our common stock dividend reflects current earnings capacity assuming a continued difficult operating environment, evolving regulatory guidance, and protects our capital position if economic conditions were to further deteriorate. Given this, we believe it is prudent to be extremely cautious until we see a clear path to broad economic  improvement. We are confident that this eventual economic improvement combined with our actions to increase our margins will support a higher dividend in the future,” Scharf added. Source: Wells Fargo

Probably the reason for Wells Fargo's dividend cut can be traced to the current recession that we are in, caused by Covid-19 and related depressed economic activity. The other reason is the several scandals that ruined Wells Fargo's reputation, and limited the scope of its operations. As a result, the bank didn't prosper as much in the past couple of years, and is taking things worse than competitors.

One of Wells Fargo's largest shareholders is no other than Warren Buffett's Berkshire Hathaway. Berkshire's annual dividend income from Wells Fargo will decrease from $705 million to $138 million. Buffett has gone from praising Wells Fargo and its culture, to being largely silent about the problems that the bank is facing. Of course, when you are a famous investor, you need to be very careful what you say in public.

Back when I analyzed the bank in 2013, it didn't look like a very good idea, since revenues were not growing. Earnings per share were growing due to the reduction in reserves for bad loans. I still bought some, because Buffett was buying it. It remained a very small position. I managed to sell a large portion of my position a few years ago when I did some reshuffling of assets in tax-deferred accounts. This was luck, not skill.

It looks like the US banking sector is not a good place for long-term dividend growth investing. Wells Fargo had a 34 year track record of annual dividend increases, but it lost it in 2009 when it cut dividends. It is now losing its 10 year track record of annual dividend increases. If it's earnings per share are not sufficient, Wells Fargo may be required to cut dividends or even suspend them. The same is true for all the other major banks of course.

It would be interesting to watch how the current economic recession plays out. If the recession deepens, because the Covid-19 does not seem to be under control in the US, then Wells Fargo would seem like the first shoe to drop. Translation - we may get more dividend cuts from other banks. If you believe this scenario, selling Wells Fargo may be a good choice.

On the other hand, if we manage to contain the virus through a combination of factors such as better usage of masks, vaccines/better treatments, people taking this virus more seriously, and others, we may be able to overcome a lot, and even get a decent recovery soonish. That scenario would entail a lower likelihood of dividend cuts from other major US Banks. If you believe this scenario, buying Wells Fargo today may be a decent choice.

Relevant Articles:

- Expect Dividend Cuts and Dividend Freezes in the Banking Sector
- Simon Property Group (SPG) and Wells Fargo (WFC) to cut dividends
- Should you invest in Wells Fargo (WFC)?
- Why Warren Buffett Likes Investing in Bank Stocks

Two Cheap Dividend Stocks Raising Dividends Last Week

Welcome to another edition of my weekly review of dividend increases.

I follow this process in order to monitor existing dividend holdings. It is helpful to see if my investments continue growing their dividends, and if my original investment thesis is working.

I also find this process helpful, in order to identify companies for further research.

Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

The company raised quarterly dividends by 2.10% to 46.75 cents/share. This marked the 45th consecutive year of raising the dividend for this dividend champion. During the past decade, Walgreen’s has managed to grow dividends at an annualized rate of 13.60%.The five year annualized growth rate is at 6.60%, and it seems to be slowing down.

Walgreen’s has managed to grow earnings from $2.12/share in 2010 to $4.31/share in 2019.
The company is expected to earn $5.39/share in 2020. For the past two or three years that I have analyzed the stock, the forward earnings per share have remained at $6. Walgreen’s has been unable to grow profits, and not it looks like forward estimates are coming down.

I believe that the stock is attractively valued today, and I believe that the dividend is well covered at a forward payout ratio of 34.70%. The lack of earnings growth means that future dividend growth would be very slow.

The stock is cheap at 7.45 times forward earnings and offers a high yield of 4.65%. The P/E multiple is low because the business is facing some headwinds and is expected to be unable to grow earnings per share. Without future growth in earnings per share however, future fundamental returns would be limited to the dividend yield you lock in at the time of investment. Obviously if the P/E multiple expands because future state of the business is rosier than we expect today, you would get an additional coiled spring like tailwind to future returns. Check my analysis of Walgreen's for more information about the company.

Duke Energy Corporation (DUK), operates as an energy company in the United States. It operates through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables.

The company raised its quarterly dividend by 2.10% to 96.50 cents/share. Duke Energy has increased dividends for 16 years in a row. This dividend achiever has paid dividends for over 94 years. During the past decade, Duke Energy has managed to grow dividends at an annualized rate of 2.90%.

Duke Energy has managed to grow earnings from $3/share in 2010 to $5.06/share in 2019. The company is expected to earn $5.12/share in 2020.

The stock is attractively priced at 15.90 times forward earnings and offers a dividend yield of 4.75%. The forward payout ratio is at 75.40%, which is adequate for a utility.


Relevant Articles:

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Bank OZK and John Wiley & Sons Reward Shareholders With Raises

I review the list of dividend increases every week, in an effort to monitor existing holdings, and uncover hidden dividend gems for further research.

I usually narrow my research to companies with a ten year history of annual dividend increases.
Last week, there were two companies that raised dividends. The companies include:

Bank OZK (OZK) provides retail and commercial banking services to businesses, individuals, and non-profit and governmental entities. The bank is expected to earn $1.51/share in 2020 and $2.26/share in 2021.

The bank raised its quarterly dividend by 0.90% to 27.25 cents/share. This increase represents a 13.50% hike over the dividend paid during the same time last year.

This was the 24th consecutive year of annual dividend increases for this dividend achiever. During the past decade, Bank OZK has managed to increase dividends at an annualized rate of 21.90%.
The company raised its earnings from 94 cents/share in 2010 to $3.30 in 2019.

Bank OZK is expected to earn $1.51/share in 2020 and $2.26/share in 2021.

The stock sells for 15.20 times forward earnings and yields 4.70%.

John Wiley & Sons, Inc. (JW-A) operates as a research and learning company worldwide. The company operates through three segments: Research Publishing & Platforms, Academic & Professional Learning, and Education Services.

The company raised its quarterly dividend by 0.70% to 34.25 cents/share. This was the 27th consecutive year of annual dividend increases for this dividend champion. During the past decade, the company has managed to increase dividends at an annualized rate of 9.50%. The rate of annualized dividend growth has been stalling over the past one, three and five years however.

John Wiley & Sons is expected to generate $2.02/share in 2020 and $2.43/share in 2021. For reference, the company earned $2.80/share in 2011 but lost $1.32/share in 2019.

The stock is fairly valued at 18.63 times forward earnings. The stock yields 3.64%.

I personally view both stocks as risky. Bank OZK has grown rapidly over the past decade, but that was in a very favorable economic environment. They’ve had some issues, so I am going to wait this one out.

John Wiley and Sons is a company that has not managed to grow earnings per share over the past decade. Perhaps because traditional publishing business model is under siege.

Relevant Articles:

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Dominion Energy (D) Cuts Dividends

I just learned that Dominion Energy (D) is going to cut annual dividends to $2.50/share, from $3.76/share. This ends an 18 year track record of annual dividend increases.

The company is selling assets to Berkshire Hathaway.

Proceeds will be about $3B as the deal includes the assumption of $5.7B in debt and taxes.

The proceeds of the asset sale will be used to buy back stock.

Dominion Energy is disposing of its Gas Transmission & Storage segment assets.

That includes more than 7,700 miles of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage that Dominion currently operates.

This is from the press release that was just issued:

Dominion Energy is revising its 2020 operating earnings guidance. The company now expects 2020 operating earnings of $3.37 to $3.63 per share. The company's previous guidance was $4.25 to $4.60 per-share. 

Dominion Energy expects 2021 operating earnings per share to grow around 10 to 11 percent over 2020, reflecting the full-year impact of planned share repurchases, and by about 6.5 percent annually starting in 2022, off a 2021 base. This represents a 1.5 percentage point, or approximately 30 percent, increase from previous long-term earnings per share growth guidance. 

The company now expects to target an approximately 65 percent payout ratio to be effective upon completion of the transaction. This new payout ratio implies a 2021 dividend payment of around $2.50 per share. The projected reduction in the annual dividend reflects the absence of income from the divested assets and a revision to the company's target payout ratio to align with best-in-class industry peers.

Beginning in 2022, the company expects annual dividend-per-share increases of approximately 6 percent per year.  This represents a significant increase from previous long-term dividend per-share growth guidance of 2.5 percent. 

For 2020, the company has made two quarterly payments of 94 cents per share in March and June. The company expects to make an additional payment of 94 cents per share in September and currently expects a fourth payment in December 2020 of approximately 63 cents reflecting the expected timing of transaction closing.

The company is going to be earning about a full $1/share less than originally expected ( The actual loss in earnings power per year 97 cents/share - $1.23/share). The company had 838 million shares as of 3/31/2020. This means that Dominion energy is losing roughly $800 million in earnings power, while receiving less than $10 billion in "value" from Berkshire Hathaway. Value is derived by assumption of debt in the amount of $5.7B and pre-tax cash proceeds in the amount of $4B.

This is a P/E of 12.5 - 13 for the assets that Buffett is acquiring. It looks to me that this deal is not a good one for Dominion shareholders. I do not understand why a company would voluntarily impair its earnings power, in order to sell those assets at a low price, and then have to reduce dividends to shareholders.

It is odd that the sale of these assets will result in reduction of earnings per share by $1 per year. It is also interesting that Dominion is losing almost $1 billion to taxes. This comes out to $1.25/share. The debt reduction is $5.70 billion, and pre-tax proceeds are at $4 billion ( $3 billion after-tax).

Dominion Energy has been unable to grow earnings per share for quite some time however. This is the reason why I haven't added to my position for over 6 years. Wihout growing earnings per share, you cannot grow dividends per share or grow intrinsic value.

Dominion last raised dividends in December by 2.50% to 94 cents/share. This was a very slow dividend increase, which was in stark contrast to the high raises in the years before. This is what I mentioned in my review last year:

"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."

The other announcement is that Dominion and Duke Energy announced the cancelation of the Atlantic Coast Pipeline ("ACP") due to ongoing delays and increasing cost uncertainty which threaten the economic viability of the project. Recent public guidance of project cost has increased to $8 billion from the original estimate of $4.5 to $5.0 billion. In addition, the most recent public estimate of commercial in-service in early 2022 represents a nearly three-and- a-half-year delay with uncertainty remaining. That project was announced in 2014, so it's cancellation surely is going to cut into future profitability. (Source)

Contrary to popular sentiment, utility stocks tend to cut dividends quite often. I realized that when I researched the histories of companies in the Dow Jones Utility Average a few years ago. Check my article:

High Dividend Utility Stocks – Are they a trap for income investors?

I own some shares in my personal account, which I may end up selling on Monday. I would like to initiate a position in Nextera (NEE), but the valuation is a little high for my taste. Otherwise, Con Edison (ED) is not a bad choice today for decent current income, though the future dividend growth would be less than 3%/year. A lot of folks like Southern Company (SO), but this one has been unable to grow earnings per share over the past decade either. Plus, it has some cost overruns in a project that may not be completed.

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