Eight Dividend Growth Stocks Rewarding Shareholders With a Raise

As part of my monitoring process, I review the list of dividend increases every week. This exercise is helpful in monitoring the progress for existing holdings in my dividend growth portfolio. It is also a helpful exercise to uncover hidden gems for further research.

I like to review the press releases, and see if I can see something that jumps at me. The tone of press releases, the rate of change in dividends, when compared to historical averages and growth in fundamentals, gives me a very decent approximation if management is bluffing or is simply staying the course.

I usually focus on the companies that have managed to increase dividends for at least a decade. During the past week, the following companies raised dividends for their shareholders:

Lockheed Martin Corporation (LMT) is a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems. 

Lockheed Martin raised its quarterly dividend by 8.30% to $2.60/share. This marked the 18th consecutive annual dividend increase for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 14.40%.

Between 2010 and 2019, Lockheed Martin managed to grow earnings from $7.81/share to $21.95/share. Lockheed is expected to earn $24.17/share in 2020.

The stock is attractively valued at 16 times forward earnings. Lockheed Martin yields 2.70%.

Artesian Resources Corporation (ARTNA) provides water, wastewater, and other services on the Delmarva Peninsula.  

Artesian Resources increased its quarterly dividend by 3% to 25.71 cents/share. This dividend champion company has increased dividends for 28 years in a row. The company has managed to grow distributions at an annualized rate of 3.10% during the past decade.

The company managed to grow earnings from $1/share in 2010 to $1.60/share in 2019. Artesian Resources is expected to generate $1.68/share in 2020.

The stock is selling for 20.10 times forward earnings and yields 3.05%.

Honeywell International Inc. (HON) operates as a diversified technology and manufacturing company worldwide. 

The company increased its quarterly dividend by 3.30% to 93 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Honeywell has managed to grow annual distributions at an annualized rate of 10.75% during the past decade.

The company grew earnings from $2.59/share in 2010 to $8.41/share in 2019. Honeywell is expected to earn $6.87/share in 2020.

The stock is selling for 23.50 times forward earnings and yields 2.30%.

The First of Long Island Corporation (FLIC) operates as the holding company for The First National Bank of Long Island that provides financial services to small and medium-sized businesses, professionals, consumers, municipalities, and other organizations.

The company increased its quarterly dividend by 5.60% to 19 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. Over the past decade, this dividend champion has managed to grow distributions at an annualized rate of 7.70%.

The company managed to increase earnings from $1.02/share in 2010 to $1.67/share in 2019.

The stock trades at 8.40 times forward earnings and yields 5.25%.

Accenture plc (ACN) provides consulting, technology, and outsourcing services worldwide. Accenture raised its quarterly dividend by 10% to 88 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Accenture has managed to grow dividends at an annualized rate of 14.80% during the past decade.

The company managed to increase earnings from $2.66/share in 2010 to $7.36/share in 2019. Accenture is expected to generate $8.04/share in 2020.

The stock sells for 26.70 times forward earnings and yields 1.65%.

Bank of South Carolina Corporation (BKSC) operates as the holding company for The Bank of South Carolina that provides commercial banking services to individuals, professionals, and small and middle market businesses in South Carolina. 

The company hiked its quarterly dividend by 6.25% to 17 cents/share. This marked the 10th consecutive annual dividend increase for this dividend contender. During the past decade, it has managed to grow distributions at an annualized rate of 5.70%.

The company managed to increase earnings from 58 cents/share in 2010 to $1.31/share in 2019. The stock sells for 13.50 times earnings and yields 4.20%.

Hingham Institution for Savings (HIFS) provides various banking products and services to individuals and small businesses in the United States.

The bank increased its quarterly dividend by 4.35% to 45 cents/share. The new dividend rate is 12.50% higher than the rate paid during the same time last year. The bank has consistently increased regular quarterly cash dividends over the last twenty-five years. The Bank has also declared special cash dividends in each of the last twenty-five years, typically in the fourth quarter. Over the past decade, it has managed to grow dividends at an annualized rate of 6.10%.

The company increased earnings from $4.81/share in 2010 to $17.83/share in 2019. The stock sells for 10.30 times earnings and yields 1%.

Fortis Inc. (FTS) operates as an electric and gas utility company in Canada, the United States, and the Caribbean countries. 

The utility raised its quarterly dividend by 5.90% to 50.50 cents/share. This marked the 47th consecutive year of annual dividend increases for this Canadian dividend aristocrat. Over the past decade, Fortis has managed to grow dividends at an annualized rate of 5.80%. In addition, the Corporation has extended its targeted average annual dividend per common share growth of approximately 6% to 2025 based on a 2020 annualized dividend of $1.91. Just for reference, the stock data is listed in Canadian Dollars, not US dollars.

Between 2009 and 2019, Fortis has managed to grow earnings from $1.51/share to $2.67/share. The company is expected to generate $2.58/share in 2020.

The stock trades at 20.84 times forward earnings and yields 3.75%.

Relevant Articles:

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The Behavior Gap

 Your portfolio is like a bar of soap...the more you handle it the smaller it gets.

Fidelity Magellan (FMAGX) was one of the top performing mutual funds in the US between 1977 and 1990. It was managed by legendary investor Peter Lynch, who popularized the concept of investing in what you know. His fund generated an annualized return of 29% during his tenure at Fidelity Magellan. 

This means that a $10,000 investment in the Fidelity Magellan at the beginning of 1977 would have been worth $291,782 by June 30, 1990. The same investment in S&P 500 would have been worth $57,524.

His team had calculated that the annualized average return generated by fund shareholders was only 7% during that time period. This means that a similar $10,000 investment would havebeen worth a little less than $25,000 by June 1990.

This is a very big gap between what the investment would have generated, and the actual returns generated by investors. I would refer to that gap as the behavior gap.

You'd think that having a super-star fund manager would have led investors to stick with him through the inevitable ups and downs, and invest for the long term. Of course, we know that today. But investors were not sure at the time.

Perhaps that’s because his investors were not the buy and hold type. They were chasing what is hot, and then selling at the first setback. When he would have a setback, for example, the money would flow out of the fund through redemptions. Then when he got back on track it would flow back in, having missed the recovery.

Perhaps they listened to economists, or perma-bear doom and gloomers, so they could not hold on to their equity fund. Perhaps they traded too much, because they thought they could buy low and sell high. Unfortunately, as a group, investors ended up buying high, selling low, and compounding their mistakes over several corrections.

This is a bad habit to have when you are investing your hard earned money. Noone knows if a stock is about to go up or down in the short-term, which is why it is pointless to even try. Market timing simply does not work, yet people keep jumping in and out of investments, and ultimately doing much worse than if they simple stayed put. Ultimately, it is time in the market, not timing the market that helps you take full advantage of the long-term power of compounding. That’s how you patiently compound dividend income and capital.

I see the same behavior with some dividend growth investors. Notably, they sell too soon at the first time of trouble.

They also sell too soon if the company works in their favor, but gets a little overvalued. In the long-run, I would expect a successful company to grow earnings, dividends and intrinsic value. The stock price of the business would fluctuate above and below that intrinsic value. Since no one can time the markets well enough to make it worthwhile, it is best to just hop on that train and ride for as long as possible. 

If you sell when it is overvalued, you may be making an error. That’s because if the business compounds earnings, dividends and intrinsic value over time, you are missing out on all the future growth by selling.

I read academic research that found how trading too much is hazardous to your wealth. 

I have studied my investment activity and the activity of other investors who publicly post their transactions. I have found that when individual investors sell stocks, the companies they replaced them with end up doing much worse than the companies they sold. In other words, thse investors on average ended up taking a perfectly good situation and making it worse.

I have found in my investing that selling has frequently been a mistake. I would have been better off just doing nothing. Hence, selling quality dividend growth stocks over a long investing career will most likely be a mistake.

All of this brings me to the very important point of this article. 

As an investor, you need to focus on time in the market, not timing the market.

All you have to do it focus on things within your control, such as your savings rate, the strategy you choose to achieve your goals and your temperament. Nobody can time the market, which is why it is fruitless to even try to do it.

Hence, the goal is to diversify, buy quality over time, and patiently wait for the power of compounding to do the heavy lifting for you. Do not strive for perfection, and do not overtrade. When you trade too much, you increase investment costs in terms of commissions, fees and taxes. But even more importantly, you increase your behavioral costs, and ultimately may suffer a behavior gap. That gap is the difference between the return of an asset that a patient buy and hold investor would have achieved, versus the actual return generated by someone with an itchy finger.

Relevant Articles:

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What if Altria went to zero?

A few months ago I read an article where someone expressed their hope that tobacco giant Altria (MO) goes to zero. I did not link to this controversial opinion, in order to discourage that.

Altria Group, Inc. (MO) manufactures and sells cigarettes, smokeless products, and wine in the United States.

The company last raised its quarterly dividend by 2.40% to 86 cents/share in July 2020. This marked the 51st consecutive year of annual dividend increases for this dividend king. During the past decade, this dividend king has managed to grow distributions at an annualized rate of 9.70%.

Altria earned $1.87/share in 2010 and is expected to earn $4.31/share in 2020.

The stock is cheap at 9 times forward earnings. The stock yields 8.60%. Check my last review of Altria from the time it joined the dividend kings list in 2019.

It was a welcome way to look at some key principles of dividend investing, notably the fact that dividends represent a return of investment and a return on investment. It is also a good refresher on my risk management guidelines.

For example, if you bought a share of Altria today for $40/share, you can expect to earn an annual dividend of $3.44/share. This means that as long as the dividend stays constant, the investor receives 8.60% of their original investment back each year. At this rate, the stock will pay for itself with dividends alone within eleven or twelve years. Assuming that the business is still intact, and generating profits, you would have an ownership stake worth something as well. If history is any guide, Altria will likely continue to grow dividends for the foreseeable future, which could translate into high valuations over time. This will all be driven by slow but steady growth in earnings per share. All this growth would result in an even faster dividend payback.

In other words, dividends represent a return of investment and a return on investment in the case of Altria, because just by dividends alone an investor today would recover their purchase price within 11 - 12 years, if not quicker.

However, assuming the company’s business model continues going on uninterrupted, it is likely that the investor would have received dividends and have something of value as well. Assuming that the share price stays at $40 until September 2021, an investor today would generate a close to 8.60% return merely by collecting their distributions. 

If Altria keeps growing, and earnings per share and dividends double within a decade, I could reasonably expect that the share price would double. Therefore, the total return would be very good for the patient investor who held through thick or thin. Those growing dividend payments would represent a growing portion of their returns over time. If market participants are less gloomy on Altria in a decade, and P/E expands from less than 10 today to 15 in 2030, that would be an added tailwind behind future stock appreciation.

However, if Altria continues stumbling on, it may do the unthinkable and cut dividends. While I believe that most of Altria's issues are self-inflicted wounds ( as discussed here), it is possible that I am not being objective. Sometimes, early success may make us blind to changes. This is why I always plan to sell after a dividend cut, and then reevaluate with a clear head. 

The other notable fact is that dividend investing is almost free, because we do not employ expensive fund managers that charge a percentage of fees under management. We also do not pay money for commissions either. Most dividend investors are the worst clients for brokers, because they buy and hold, and seldom trade actively. 

Imagine that you held Altria in a diversified portfolio of 100 individual companies, and the portfolio is equally weighted and worth $100,000 at its inception. 

If you paid a fund manager a 1% annual fee to manage that portfolio, you are essentially losing one Altria per year in management fees alone. 

But, if you paid someone to buy stocks for you 1%/year, they would earn that 40 cents on a $40 stock each year that you work with them. If the stock stays at $40/year, and you keep holding for 20 years, you would have paid them close to $8/share. 

If that position went to zero, not all is lost in a taxable account. The share that cost $40 can be sold at zero, resulting in a $40 capital loss that can be offset against other gains or against income on the first $3,000 of losses. If you are in the 24% tax bracket, you will save $9.60 in taxes. This means that your loss is never 100%, which is a small consolation. If you managed to collect dividends net of taxes for a sufficient period of time to cover your cost, and sold for a $40 loss, the tax savings alone could have been the determining factor between a gain and a loss.

This is where you need to determine your risk management method. Some investors end up reinvesting dividends back into the same company, which works wonderfully if that company ends up delivering outstanding returns. It doesn't work as well if the company ends up failing.

Other investors take the dividends in cash, and re-deploy them elsewhere. This method works best if the investor deploys the cash into other companies, and the original dividend payer stumbles onto hard times. Redeploying dividends elsewhere doesn't work as well when the original dividend payer is a dividend dynamo, which Altria was between 1926 and 2015.

That being said I am not suggesting that Altria is going to zero anytime soon. However, I view the high dividend yield as a warning sign today. While I like Altria, I would be selling the minute it declares a dividend cut. While I reinvest some of the dividends back in one of my portfolios, I generally get most of my Altria dividends in cash to redeploy elsewhere or to spend.

Relevant Articles:

- Analysis of Altria's Recent Deal Activity

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- Risk Management

Microsoft Hikes Dividends by 10%

Microsoft Corporation (MSFT) develops, licenses, and supports software, services, devices, and solutions worldwide.

The company just raised its quarterly dividend by 9.80% to 56 cents/share yesterday. Microsoft is a dividend achiever which has managed to increase annual dividends for 16 consecutive years.

Annual dividends increased from 64 cents/share in 2011 to $2.04/share in 2020. At the new rate, the forward dividend is $2.24/share.

Earnings per share have increased from $2.69/share in 2011 to $5.76/share in 2020. Microsoft is expected to generate $6.46/share in 2021 and $7.34/share in 2022.

Future growth would be driven by its cloud based platform Azure, as corporations move to the cloud. It would be driven from Office, as more customers move to use software as a service, rather than buy licenses. Linkedin could help growth too, as would Xbox. Windows is essentially a utility, on which a lot of other applications run.

Earnings per share growth has been aided by share buybacks. Microsoft reduced the number of shares outstanding from 8.593 billion in 2011 to 7.683 billion in 2020.

The dividend payout ratio has increased from 23% to 35% between 2011 and 2020.

The stock is not cheap today at 32.30 times forward earnings and a dividend yield of 1.10%. 

If Microsoft stumbles over the next couple of years, I would be ready to take advantage of this opportunity at a much better entry valuation. 

Relevant Articles:

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How Grace Groner Turned $180 in $7 Million by Investing in Dividend Growth Stocks

Grace Groner is one of the most successful dividend investors out there, on par with Anne Scheiber and Ronald Read. She definitely fits the humble origin narrative, and the fact that she managed to generate a large fortune with a simple investing strategy.

Grace and her twin sister were orphaned at the age of 12. They were taken by a rich family, which paid for their college education. She graduated in 1931, and took a job as a secretary in Abbott Laboratories.

She never married, and lived a simple and frugal life. She was willed a home, which she lived for the rest of her life. She got her clothes from rummage sales, walked rather than buy a car. She felt no urge to keep up with her neighbors. Though Groner was frugal, she was no miser. She traveled widely upon her retirement and occasionally funneled anonymous gifts through Marlatt to needy local residents. She had a gregarious personality and plenty of friends. She remained connected to her college, attending football games.

Ms Groner worked as a secretary at Abbott Laboratories for 43 years. She invested $180 in 3 shares of Abbott Laboratories (ABT) in 1935. These shares split multiple times, and paid a dividend throughout her investment journey. She then simply reinvested the dividends for the next 75 years. She never sold, but just held on to her shares.

Abbott Laboratories (ABT) was a dividend aristocrat which had a 38 year track record of annual dividend increases as of 2010. The company has started paying dividends in 1924. Abbott split into two companies in 2012, and they are each continuing the culture of annual dividend raises to this day. The companies are Abbott Laboratories (ABT) and Abbvie (ABBV)

Grace Groner turned that small $180 investment in 1935 into $7 million by the time of her death in 2010. Based on my calculations, this investment was generating $210,000 in annual dividend income.

She left the money to her foundation, which you can read more about here.

Turning $180 in $7 million over a period of 75 years is a very high return on investment over a long period of time. She took full advantage of the power of compounding over long periods of time. As we noticed with the story of Ronald Read, most riches are generated at the tail end of the investing journey.

It looks like Grace retired in 1974 from Abbott, after a 43 year career starting in 1931. This means that when Grace Groner retired in 1974, she was 65 years old. She did not have the $7 million sitting neatly in a bank account for her whole life. Rather, she wasn’t even a millionaire for at least 13- 14 years of her retirement. She didn’t probably even have to think too much about her legacy, until sometime in the 1980s, when Abbott really started compounding at a high pace of return.

Based on my research, it looks like that the Abbott Labs stock price alone jumped 100 times between 1975 and 2010. This means that when she retired at the age of 65, her position in the stock could not have been worth more than $70,000 to $100,000. This was an impressive amount in 1974, but not life changing money. Given Grace’s frugality, she probably lived on Social Security and a corporate pension, with the dividend income from Abbott being a safety net for her just in case.

As she grew older and enjoyed her retirement, travelling, making new friends, and enjoying her life, her modest investment really took off. That’s the nature of long-term compounding – most of the fruits of a long-term compounding are really experienced at the tail end of the journey.

I am just looking at the stock price chart, but it looks that she probably didn’t even become a millionaire until 1987, when she was 78 years old.

Source: Global Financial Data

Another piece of research I reviewed shows that a $1 investment in Abbott in 1974 increased by a factor of 625 by 2012. This shows me that Grace Groner's investment in the stock could have been worth as little as $10,000 to $20,000 when she retired in 1974. 

Source: Stock Market Winners: Conditional Probabilities, Elapsed Times, and Post-Event Returns

The success was dependent on several important factors:

1) Invest at a high rate of return for a long period of time
2) Invest in a company with durable competitive advantages with a long runway
3) Stay invested for decades, without selling
4) Keep reinvesting those dividends along the way

There is a large dose of luck involved in this investment of course. After all, it is generally not very good idea to invest money in your employers stock. That’s because if your employer has troubles, you are likely to get laid off at a time when their stock price is lower as well.

In addition, it is generally not a good idea to have most of your net worth in just one stock. While these stories never provide full information about Ms Groner’s portfolio, it does make us believe that it was in just one security – Abbott Labs. If she had worked at Enron for example, there would have been pretty much nothing left. For ordinary investors like you and me, the best course of action is to have a widely diversified portfolio.

She was frugal, having grown up in the depression era, and was the classical millionaire next door type of person who was not interested in keeping up with the Joneses. Grace Groner left her entire fortune to her Alma Mater. Her $7 million donation was generating approximately $210,000 in annual dividend income in 2010.

Abbott sold at $53.99/share on the last day of 2009. This means that the $7 million was split into 129,653 shares. At a quarterly dividend of 40 cents/share, this comes out to $51,861 quarterly dividend check or $207,444 annual dividend check.

Ms Groner left the money to charity, which was to use the income to fund its programs.

I am not sure how the institutions invested the money after 2010. Based on tax returns from the foundation, it looks like they sold Abbott stock in 2010. It also looks as if the nest egg has largely stayed around $6 - $7 million, due to reinvestment into assets with lower returns, distributions for charity purposes and due to expenses.

Abbott has split into Abbvie and Abbott in 2012. For each share of the old Abbott, investors received a share of Abbvie and a share of Abbott Laboratories.

Let’s assume that the institution kept those shares, and just spent the dividend income. I crunched some numbers and came up with the following amount of actual dividend income

The amount of dividend income received would have climbed from $223,000 at the end of 2010 to $798,000 by 2020.

The portfolio would be worth $25.20 million today. Not a bad amount from a single smart investment 85 years ago.

Multi-generational wealth is possible, we just need to get the snowball rolling, and the trust documents filed correctly.

Relevant Articles:

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- The Most Successful Dividend Investors of all time
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- How Anne Scheiber Made $22 Million Investing in Dividend Growth Stocks