I review the list of dividend increases every single week, as part of my monitoring process. A long history of dividend increases is an indication of a quality company with a competitive advantage in its industry. I use the combination of length of streak of consecutive annual dividend increases and dividend increases as part of my toolkit to monitor the breadth of dividend universe. It helps me be on top of existing holdings and potentially identifying companies for furher research.
This is of course an exercise that is in addition to my regular process of scanning the dividend growth investing universe, and monitoring my list. There are a few extra steps involved, such as reviewing trends earnings, dividends, and trying to understand the company. Even a great company is not worth buying however, if it doesn't sell at the right price.
Over the past week, there were 42 dividend increases in the US. I narrowed down the list by focusing only on the companies that raised dividends last week, but also have a ten year track record of consecutive annual dividend increases. The companies are listed below:
This list is not a recommendation to buy or sell stocks. It is simply a list of companies that raised dividends last week. The companies listed have managed to grow dividends for
at least ten years in a row.
The next step in the process would be to review trends in earnings per share, in order to determine if the dividend growth is on strong ground.
Rising earnings per share provide the fuel behind future dividend increases.
This should be followed by reviewing the trends in
dividend payout ratios, in order to check the health of dividend payments. A rising payout ratio over time shows that future dividend growth may be in jeopardy. There is a natural limit to dividends increasing if earnings are stagnant or if dividends grow faster than earnings.
Obtaining an understanding behind the company’s business is helpful, in order to determine how defensible the dividend will be during the next recession. Certain companies are more immune to any downside, while others follow very closely the rise and fall in the economic cycle.
Of course, valuation is important, but it is more art than science.
P/E ratios are not created equal. A stock with a P/E of 10 may turn out to be more expensive than a stock with a P/E of 30, if the latter is growing earnings and the former isn’t. Plus, the low P/E stock may be in a cyclical industry whose earnings will decline during the next recession, increasing the odds of a dividend cut. The high P/E company may be in an industry where earnings are somewhat recession resistant, which means that the likelihood of dividend cuts during the next recession is lower.
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