Nestle Dividend Stock Analysis

Nestlé S.A. operates as a food and beverage company. The company operates through Zone Europe, Middle East and North Africa; Zone Americas; Zone Asia, Oceania and sub-Saharan Africa; and Nestlé Waters segments. 

The company is based in Switzerland, and reports earnings and pays dividends in Swiss Franks (CHF). I use the Swiss Frank as reporting currency for this analysis. But when converting for US dollars, be aware that there will be some fluctuations due to changes in currency rates. There is also a 15% withholding tax on dividends for US Taxpayers, which is taken at the source. Hence, it may be best to own these shares in a taxable account.

Nestle is an international dividend aristocrat, which has managed to increase dividends annually since 1995. While reviewing Nestle's dividend history, it looks like Nestle has not cut or suspended dividends at least since 1959, which is impressive.

Between 2009 and 2020, Nestle managed to increase dividends from 1.60 CHF/share to 2.75 CHF/share.

The company has managed to grow earnings from 2.92/share in 2009 to 4.30/share in 2020. Nestle is expected to generate 4.39 CHF/share in 2021.

The thing that appeals to me with Nestle is the predictability of the food and beverage industry, in which Nestle is a leader. Demand for food and beverages is expected to grow in emerging markets, while remaining stable and relatively immune from the ups and downs of the economy. Nestle is well positioned to ride the increasing affluence of emerging markets with its strong presence throughout the emerging markets. In fact, 40 % of the company’s sales came from emerging economies. Understanding local markets and strategic acquisitions will be the key to future success.

The company is growing its ecommerce segment, taking advantage of a trend of consumers shopping online versus in store. This is a testament to the strong brands that Nestle has, which result in small repeatable transactions by consumers. The company’s business has been resilient and adaptable during the pandemic as well. This is the type of recession proof stock that could continue rewarding shareholders with raises for years to come.

The company has been able to generate strong organic growth in key areas such as North America, Europe and Asia through several factors. Some of them include product innovation, leveraging the company’s global scale, investing in building and maintaining the company’s strong brand positions worldwide. The company has 29 billionaire brands, which have delivered strong organic growth over the past few years as well. Nestle’s long term goal is to generate organic sales growth, achieve sustainable improvement in EBIT and improving the trend in return-on-investment capital. It has solid competitive advantages of scale, and reach of its distribution channel around the world. It has a portfolio of solid brands, which command premium pricing and which consumers are willing to pay for their quality. The company continuously invests in its brands, tries to innovate and satisfy emerging consumer trends, and adapts to the conditions in different market environments it operates in.  The company takes an active approach to its portfolio of brands, as it tries to enter attractive segments and exit those in which it lacks competitive advantages.

I like investing in boring companies, which are companies that have been around for over a century, and managed to survive and thrive amidst a variety of cataclysms. These companies are predictable, offer a product or service that customers crave, and quite often they are in a niche with a low chance of technological obsolescence. Technology changes may actually reduce costs, make production/marketing/distribution more efficient, and result in higher profits. These companies sell small, everyday repeat items to consumers, and become more valuable over time as they grow the business.

Nestle owns 23% of French cosmetics company L’Oreal. Check this article: If you had to own one company for a generation..

Nestle has also done a great job in buying back shares. Between 2009 and 2020, the number of shares outstanding declined from 3.572 billion to 2.849 billion.

The payout ratio has increased slightly since 2008, and after 2010 it has been mostly above 60%

Nestle stock is not cheap at 23.70 times forward earnings, but it is a quality company that would likely be around for a while. If you asked me to put 100% of my money in one company, Nestle would be one at the top of my list. It has geographic diversification, a portfolio of strong brands, a long history of growing brands, a portfolio of products that are relatively immune from the short-term economic cycle and leading position in its various niches it operates in. The stock yields 2.65%.

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Six Reliable Dividend Growth Stocks Rewarding Shareholders With Raises

I review the list of dividend increases weekly, as part of my portfolio monitoring process. I usually narrow the list down to companies with at least a ten year history of annual dividend increases.

The next involves reviewing each company in sufficient detail, in order to determine if dividend increases are based on solid fundamentals. This review includes looking at trends in earnings per share, dividends per share, payout ratios as good start. The goal is to determine the likelihood of future dividend increases.

The last review point includes valuation. In general, I try to avoid overpaying for companies. Valuation is more art than science however ( as is investing in general). This is why it is important to look at relative valuations and growth in the opportunity set, not just focus on absolute numbers.

These steps keep me in fighting shape, and help me monitor as many companies in the investable dividend growth universe in advance. This helps me to be prepared when the right opportunity at the right price comes along.

Over the past week, there were six companies which raised dividends to shareholders. Each company has a minimum ten year streak of annual dividend increases under its belt. The companies include:

Realty Income (O) increased its monthly dividend to 23.50 cents/share. That's a 1.73% increase over the dividend paid during the same time last year. Over the past decade, Realty Income has managed to increase dividends at an annualized rate of 4.90%. This dividend aristocrat has managed to grow dividends since 1994.

Between 2010 and 2020, Realty Income managed to grow FFO from $1.83/share to $3.31/share. Realty Income is expecting to generate FFO of $3.26 - $3.34/share in 2021.

The stock sells for 18.29 times FFO and yields 4.57%. Check my analysis of Realty Income for more information about the company.

WD-40 Company (WDFC) develops and sells maintenance products, and homecare and cleaning products in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.  The company increased its quarterly dividend by 7.46% to 72 cents/share. This marked the 12th consecutive year of dividend increases for this dividend achiever. Over the past decade, the company has managed to increase distributions at an annualized rate of 10.10%.

Between 2010 and 2020, the company grew earnings from $2.15/share to $4.40/share. WD-40 is expected to earn $5.51/share in 2021.

The stock sells for 53.87 times forward earnings and yields 0.97%.

Williams-Sonoma, Inc. (WSM) operates as an omni-channel specialty retailer of various products for home. The company raised its quarterly dividend by 11.32% to 59 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade the company has managed to increase dividends at an annualized rate of 13.60%.

Between 2011 and 2021, the company grew earnings from $1.83/share to $8.61/share. Williams-Sonoma is expected to earn $9.22/share in 2022.

The stock sells for 18.96 times forward earnings and offers a current yield of 1.35%

UDR, Inc. (UDR) is a leading multifamily real estate investment trust with a demonstrated performance history of delivering superior and dependable returns by successfully managing, buying, selling, developing and redeveloping attractive real estate communities in targeted U.S. markets. The REIT hiked its quarterly dividends by 0.69% to 36.25 cents/share. This marked the tenth consecutive year of annual dividend increases for UDR. Over the past decade, the REIT has managed to hike dividends at an annualized rate of 7%.

Between 2011 and 2020, FFO/share grew from $1.28 to $1.85. The REIT is expected to earn $1.95/share in 2021.

The stock sells for 22.26 times FFO and yields 3.35%

Horizon Bancorp, Inc. (HBNC) operates as the bank holding company for Horizon Bank that provides a range of commercial and retail banking services.  The company raised its quarterly dividend by 8.33% to 13 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, the company has been able to increase dividends at an annualized rate of 13.60%.

Between 2010 and 2020, the company grew earnings from $0.54/share to $1.55/share. Horizont Bancorp is expected to earn $1.45/share in 2021.

The stock is selling for 13.40 times forward earnings and yields 2.67%. 

Independent Bank Corp. (INDB) operates as the bank holding company for Rockland Trust Company that provides commercial banking products and services to individuals and small-to-medium sized businesses primarily in Massachusetts.  The bank hiked its quarterly dividend by 4.34% to 48 cents/share, marking the tenth consecutive annual dividend increase. It has managed to grow dividends at an annualized rate of 9.70% over the past decade.

The bank earned $2.12/share in 2011 and is expected to grow earnings to $3.95/share by 2021.

The stock is selling for 22.93 times forward earnings and yields 2.12%.

Relevant Articles:

- Two Dividend Hikes From Last Week

- 13 Dividend Growth Stocks Raising Shareholder Distributions

- Fifteen Companies Rewarding Shareholders With a Raise

Staying Power

As an investor, you buy shares in companies in order to make a profit. You generate returns through a combination of price appreciation and distributions. 

In the long-run, equities generate better total returns than almost any other asset class. This chart is from the excellent book " Stocks For The Long Run", written by Jeremy Siegel.

The problem is that to earn these returns, you have to endure gut-wrenching volatility. It is not uncommon to see steep drops in share prices once every couple of years. Many of these declines can make even the most patient long-term investor question their position. This is why I do not focus on the fluctuations in share prices too much..

I like to focus on dividends, because that is real cash being deposited to my account for the privilege of owning a stock. When I focus on the dividend, and the dividend is well covered from earnings, I can ignore short-term noise and negative news, and try to focus on the long-term picture. This is difficult to do, if you only focus on share prices, bad news, and facts when things get bad. And believe, as a long-term investor you will see a lot of turbulence over the decades you are investing. That’s why you need staying power, that will provide you with conviction to stick to your investment plan through thick or thin. Getting paid to own and hold on to you stocks is a nice reminder that you have staying power.

When you stay invested, and you are not afraid of any short-term noise, you get to enjoy the compounding of your money at high rates of return. 

The following chart shows the price performance, quarterly dividends per share and annual earnings per share for Johnson & Johnson (JNJ). While share prices had rapid declines in 2000, 2002, 2008, 2015, 2018 and 2020, the investor who focused on the growing stream of dividend income would have been able to hold on tight, and even take advantage of declines. Getting paid a rising dividend every year provides the investor with the inner strength to stay invested, and even ignore fluctuations if they are retired for example. That statement holds true for as long as the dividend is maintained at least. In the case of Johnson & Johnson, this dividend king has increased dividends for 58 consecutive years, because it has managed to grow earnings per share over time. The dividend is also well covered by earnings.

The concept of staying power applies to pretty much anything else in life by the way. If you enjoy your job and career, you have staying power. You are more likely to try and do a good job if you enjoy your occupation. If you hate your job, and you are forced to work long hours for a difficult boss, you are less likely to stick to it.

In a similar way, when you invest in equities, you need to have staying power. You should invest money that you won’t expect for at least several years. If you really need the money soon, you are better off putting it in a lower earning asset that won’t fluctuate in price.

If you focus on the dividend income, which is more stable and easier to forecast than share prices, you can afford to ignore market volatility. The only way you will look for trouble is rooting for lower prices, when you have money to deploy. Dividend income is easier to forecast, and is more reliable than share prices. Historically, dividends in the US have increased at faster the rate of inflation.  US companies tend to have a culture to raise dividends over time. Only rarely do corporations cut or eliminate dividends. 

That is to be expected with some cyclical companies, or those that are about to enter a terminal decline. Another instance of massive dividend cuts will occur during an economic catastrophe, such as the Great Depression of 1929 – 1932 or the Great Recession of 2007 – 2009.  Even during these two cloudy periods for US Capitalism, dividends per share declined by much less than stock prices. Dividends are more stable, more reliable and easier to forecast than share prices. Other than that, it is pretty much smooth sailing. And while we had more dividend cuts than usual in 2020 due to Covid-19 shutdowns affecting businesses, the total amount of S&P 500 dividends in 2020 reached a record amount.

These features makes dividends the ideal source of income in retirement.  In my retirement plan, I focus on the end result, and structure my investing to show me immediate progress towards my goals. That’s why I focus on dividend growth stocks.

When you get dividends, you know how much you can spend safely. You have a lower chance of running out of money in retirement if you focus on dividend investing.  If you focus on selling shares to determine how much you can spend, you would have to use the services of a Math or Economics PhD, who will run complex formulas, statistical regressions and Monte Carlo simulations. With dividends, it is easier to budget, and to know how much you can spend safely in retirement.  If you multiply the number of shares in each company you own, times the expected annual dividend rate, you can easily see how much money you will receive over the next year.

When companies you own earn money, they reinvest a portion into growing the business, and send the excess cashflow to you in the form of dividends. Dividends impose a discipline on corporations to focus only on those projects with the highest ROI. Dividends also reduce the likelihood that managements will spend lavishly or try to build empires that will enrich CEOs, at the expense of ordinary shareholders. Patient shareholders are getting what they deserve: a four-times-a-year reminder that they, not management, own the company. When these investors receive dividends, they are focused on the long-term ability of the companies to pay and grow dividends. That ultimately provides them with the patience to hold on to their shares. That staying power in dividend investing is very important.

Dividends are underappreciated form of return today. But that’s because few people really understand investing, or have the knowledge or temperament to invest for the long-term successfully.

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Five Dividend Growth Stocks Rewarding Shareholders With A Raise

I review the list of dividend increases as part of my monitoring process. For the sake of my process, I focus my attention on the companies with a more established track record of annual dividend increases. Companies with a shorter history of annual dividend increases generally have a more cyclical business. As an investor I look for companies with a more defensible business model, that is somewhat more immune to the ups and downs of the economic cycle. 

These weekly reports I type up for you provide the types of quick evaluations I do on companies I stumble upon, before deciding to review them further for a potential investment, or put them away.

Over the past week, there were several companies that managed to increase dividends to shareholders and had a ten year history of annual dividend increases. The companies include:

Oracle Corporation (ORCL) provides products and services that address enterprise information technology environments worldwide.

Oracle raised its quarterly dividend by 33% to 32 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. The company has managed to increase dividends at an annualized rate of 17% over the past decade. Oracle does not announce dividend increases annually and on a predictable schedule however, yet it still managed to increase annual dividends due to its strategic timing of the quarters in which increases fall under.

Between 2011 and 2020, the company grew earnings from $1.67/share to $3.08/share.

The company is expected to earn $4.45/share in 2021.

The stock is selling for 15 times forward earings and yields 1.91%.

QUALCOMM Incorporated (QCOM) engages in the development and commercialization of foundational technologies and products are used in mobile devices and other wireless products, including network equipment, broadband gateway equipment, consumer electronic devices, and other connected devices worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).

Qualcomm raised its quarterly dividend by 4.61% to 68 cents/share. This marked the 18th year of consecutive annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 13.30% over the past decade.

Between 2011 and 2020, the company grew earnings from $2.52/share to $4.52/share.

The company is expected $7.32/share in 2021.

The stock is selling for 17.64 times forward earnings and yields 2.09%.

Colgate-Palmolive Company (CL) manufactures and sells consumer products worldwide. The company operates through two segments, Oral, Personal and Home Care; and Pet Nutrition.

Colgate-Palmolive hiked its quarterly dividend by 2.27% to 45 cents/share, marking the 58th consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to increase dividends at an annualized rate of 5.60%.

Between 2011 and 2020, Colgate-Palmolive managed to increase earnings from $2.47/share to $3.14/share.

The company is expected to earn $3.29/share in 2021.

The stock is selling for 22.92 times forward earnings and yields 2.38%.

Hill-Rom Holdings, Inc. (HRC) operates as a medical technology company worldwide. It operates through Patient Support Systems, Front Line Care, and Surgical Solutions segments.

The company raised quarterly dividends by 9.10% to 24 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company managed to increase dividends at an annualized rate of 7.90%.

Between 2011 and 2020 the company managed to grow earnings from $2.09/share to $3.32/share.

The company is expected to earn $5.82/share in 2021.

The stock is selling for 18.64 times forward earnings and yields 1.85%.

Franco-Nevada Corporation (FNV) operates as a gold-focused royalty and stream company in the United States, Canada, Latin America, Australia, Europe, and Africa, and internationally. It operates through two segment, Mining and Energy.

The company increased its quarterly dividend by 15.40% to 30 cents/share. This marked the 14th annual dividend increase for this dividend achiever.

Franco-Nevada has managed to hike dividends at an annualized rate of 13.40% over the past decade.

Between 2010 and 2020, Franco-Nevada has managed to grow earnings from 35 cents/share to $1.71/share.

The stock is selling for 37.24 times forward earnings and yields 0.86%.

Relevant Articles:

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- Fifteen Companies Rewarding Shareholders With a Raise

Two Dividend Hikes From Last Week

I review the list of dividend increases every week as part of my monitoring process. I usually review the list but focus on the ones that have managed to increase dividends for at least a decade.

In the past week, there were three companies that raised dividends to shareholders, and have a 10 year track record of annual dividend increases. The companies include:

General Dynamics Corporation (GD) operates as an aerospace and defense company worldwide. It operates through four segments: Aerospace, Marine Systems, Combat Systems, and Technologies.

The company increased its quarterly dividend by 8.18% to $1.19/share. This marked the 30^th consecutive annual dividend increase for this dividend aristocrat.

Over the past decade, the company has managed to increase dividends at an annualized rate of 10.20%.

Between 2011 and 2020, the company managed to increase earnings from $6.87/share to $11/share. The company is expected to earn $11.11/share in 2021.

The stock is selling for 15.38 times forward earnings and yields 2.79%. Check my analysis of General Dynamics for more information about the company.

Horace Mann Educators Corporation (HMN) operates as a multiline insurance company in the United States. The Company operates through five segments: Property and Casualty, Supplemental, Retirement, Life, and Corporate and Other.

The company increased its quarterly dividend by 3.33% to 31 cents/share. This was the 13th consecutive year the Board has increased the annual shareholder cash dividend. Over the past decade, this dividend achiever has managed to increase distributions at an annualized rate of 13.10%. 

Between 2011 and 2020, the company managed to boost earnings from $1.70/share to $3.17/share. The company is expected to earn $3.14/share in 2021.

The stock is selling for 13.68 times forward earnings and yields 2.89%.

Relevant Articles:

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- Fifteen Companies Rewarding Shareholders With a Raise

- Fourteen Dividend Growth Stocks Raising Dividends For Shareholders

- Eight Dividend Paying Companies Growing Dividends Like Clockwork