Selected Dividend Increases in April

Several Dividend Aristocrats have increased their dividends in April. The companies are:

Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in May: CLX, LEG, LOW, PEP,STR, ROH. These dividend aristocrats have last increased their dividend payments in May 2007. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only dividend growth stock that has consistently increased its dividend twice in one year since 2003 is STT- State Street.

Related Articles

- Dividend Increases in March

- Dividend Increases in February

- Dividend Increases in January

- Dividend Growth Stocks Watchlist

Current Aging of the Dividend Aristocrats

In my article Historical changes of the S&P Dividend Aristocrats I showed that as of 2004, the average stay of dividend aristocrats in the index is about 6.50 years. So how long have the current members of the Dividend Aristocrats Index been raising their dividends?
You can download the information in this google spreadsheet.

It seems that on average, the companies in the Dividend Aristocrats list have increased their dividends for 36 consecuitve years. Thus, it appears that companies stay about 11 years on average in the index. However, the latter number of years is higher than the amount, reported in my article from monday, due to survivorship bias.

Relevant Articles:
- Why do I like Dividend Aristocrats?
- Dividend Growth Stocks Watchlist
- Why dividends matter?
- Historical changes of the S&P Dividend Aristocrats

Historical changes of the S&P Dividend Aristocrats

Some of the best companies in the world are part of the Dividend Aristocrats list, published by S&P. Corporations that have consistently increased their dividends for at least a quarter of a century make the cut in this elite index.

Recently I stumbled upon this document (opens as a pdf file), which shows historical changes in the S&P Dividend Aristocrats list from 1989 to 2004.

I also stumbled upon this document (opens as a pdf file) from ProShares, which also outlines the historical components of the S&P Dividend Aristocrats Index between 1992 and 2015.

You can see that in 1989, the number of companies was only 26. Only 7 of the original dividend aristocrats still remain in the index. The companies are: Dover (DOV), Emerson Electric (EMR), Johnson & Johnson (JNJ), Coca-Cola (KO), Lowes (LOW), 3M (MMM) and Procter & Gamble (PG).

In 2004, the number of Dividend Aristocrats rose to 56. Currently there are 60 companies in the index. The percentage of companies that remain in the index after 10 years is about 30%. There have been about 116 companies that have gone through the index for the 15 year period form 1989 to 2004. So as a dividend investor, you should expect year over year changes in the index.
The average company stayed 6.5 years in the S&P Dividend Aristocrats index from the time of its addition.

Judging by the low initial number of dividend aristocrats in 1989, I think that the companies with continuous uninterrupted payment increases for periods of over a quarter of a century are a recent phenomenon, born from the ashes of the 1973- 1974 bear market. I am not sure whether dividend aristocrats have existed before 1980’s. That does mean though that this form of investing is a fad. Even if you continuously updated your dividend aristocrats’ portfolio, you would have achieved superior returns over the broad market averages .

Since the aristocrats only stay in the index for 6.5 years, shouldn’t an investor, who seeks continuous dividend raises for a maximum amount of years, invest in the dividend achievers? I do not have any historical data on the annual changes in the components on this index. Based off my limited observations over the past couple of years though, it seems to me that only 20 to 30 % of the 300+ dividend achievers out there would one day become dividend aristocrats. It also seems to me that some companies join the achievers list for a couple of years and then leave it for a while due to a difficult financial situation, only to come back several years after that.

So how will the data, presented above affect my strategy? Basically I do expect that almost all of the stocks that I buy will someday cut their dividend or freeze it for a period of time. I plan on selling companies that cut or suspend their dividend. I would not plan on selling companies that simply do not raise their dividend for a period of time, assuming that the company met my entry criteria in the first place though.

I also plan on continuously scan the market for opportunities that fit my entry criteria and allocate no more than 1% of my portfolio in a single instrument.

Update: I wanted to add a great comment from reader Yielder, regarding the companies that dropped off the list of dividend aristocrats.

"After filtering out the stocks the companies that disappeared as a result of corporate reorganization, eg., mergers, I looked at the remainder for some common thread. I found that in all cases save one, a company dropped off the list as a result of doing a large acquisition often using heavy debt. The acquisition was either outside the company's area of expertise or the company had little or no experience with acquisitions.

Regardless of whether a company has a long history of dividend growth, a large acquisition financed by debt is cause for alarm bells to go off. Excessive debt can choke the company especially if the new asset requires "fixing", eg. Jean Coutu's Eckerdt purchase. Unless a company has a great deal of experience with acquisitions, a quick & successful integration can be a problem especially if the company being acquired involves new areas of expertise."

Relevant Articles:

- Why do I like Dividend Aristocrats?
- Dividend Growth Stocks Watchlist
- Where are the original Dividend Aristocrats now?
- Why dividends matter?

Wilmington Trust (WL) Dividend Analysis

Wilmington Trust Corporation operates as the holding company for Wilmington Trust Company that provides fiduciary, wealth management, investment advisory, financial planning, insurance, broker-dealer, lending, and deposit-taking services in the United States and internationally.

The company is a high yielding dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 26 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 5.10 % to its shareholders.

At the same time the company has managed to deliver a 5.20% average annual increase in its EPS since 1998.

The ROE has been decreasing from its high above 20% in the late 1990’s to its most recent lows around 16% in 2007. If the ROE on WL falls below 14% this could be a red flag for the company’s ability to generate higher amount of earnings for each dollar in owners’ equity.

Annual dividend payments have increased over the past 10 years by an average of 5.6% annually, which is lower than the growth in EPS. A 5.6% growth in dividends translates into the dividend payment doubling almost every 13 years. If we look at historical data, going as far back as 1990, WL has actually managed to double its dividend payment every eight and a half years on average.

If we invested $100,000 in WL on December 31, 1997 we would have bought 3418 shares (Adjusted for a 2:1 stock split in June 2002). In January 1998 your quarterly dividend income would have equaled $615. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1560 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 86 %. If you reinvested it though, your quarterly dividend income would have increased by 154%.

The dividend payout has remained close 50% for the majority of our study period with the exception of a brief spike above 60% in 2006. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that WL is attractively valued with its low price/earnings multiple of 12.70 and low DPR. The company also boasts an above average dividend yield at 4.30%.

Disclosure: I own no shares of WL

Relevant Articles:

- RPM Dividend Analysis

- USB Dividend Analysis

- GWW Dividend Analysis
- XOM Dividend Analysis

RPM Dividend Analysis

RPM International, Inc., through its subsidiaries, engages in the manufacture, marketing, and sale of various specialty chemical products to industrial and consumer markets worldwide. It operates in two segments, Industrial and Consumer.
The company is a high yield dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 34 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 7.70 % to its shareholders.

At the same time company has managed to deliver a 7.70% average annual increase in its EPS since 1998. The majority of the gains in EPS occurred in recent years; this indicator was stuck in a range for the majority of the time of this study.

The ROE has remained in the 5 -20% range over the past 10 years with the exception of the 2006. It has closely tracked the fluctuations in EPS.

Annual dividend payments have increased over the past 10 years by an average of 5.4% annually, which is lower than the growth in EPS. A 5.4% growth in dividends translates into the dividend payment doubling almost every 13 years. If we look at historical data, going as far back as 1984, RPM has actually managed to double its dividend payment every eight years on average.

If we invested $100,000 in RPM on December 31, 1997 we would have bought 7072 shares. In January 1998 your quarterly dividend income would have equaled $792. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1939 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 70 %. If you reinvested it though, your quarterly dividend income would have increased by 145%.

The dividend payout has remained above 50% for the majority of our study period with the exception of 2004 and 2007. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that RPM is attractively valued with its low price/earnings multiple of 19 and low DPR. The company also boasts an above average dividend yield.

Disclosure: I own shares of RPM

- APD Dividend Analysis

- USB Dividend Analysis
- GWW Dividend Analysis

- XOM Dividend Analysis

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Dividend Achievers Watchlist

A new list that I am concentrating right now is the S&P 1500 dividend achievers. These are companies that have increased their annual dividend payments for at least 10 consecutive years.
I created custom watch lists in Yahoo! Finance in order to summarize the two groups of dividend achievers by a variety of criteria such as Symbol, Yield, P/E , Div/Shr, Last Price,EPS (ttm) ,PEG Ratio ,Dividend Payout. What I did was first exclude any stocks which had a dividend payout ratio of more than 50%. That gives me some reasonable assurance that the company is less likely to cut its dividends.
I also look at P/E ratios, since I do not want to overpay for a company. Anything with a P/E of over 20 is out of my watchlist.
I also check the PEG ratio but just to find stocks which might be expensive in terms of their growth prospects.
A third criteria that I look for is a dividend yield of at least 2%, which is a little bit over than the current yield of 2.00% that SPY is rewarding its shareholders.
The last but not least criteria that I screen for is the 5 dividend growth ratio. I am looking for an average annual dividend growth of at least 5% over the past 5 years. I didn't include the dividend growth rate in this screen though.
The reason why I selected dividend growth in the end is because I want to decrease to a minimum the rush to buy a stock that simply increased its dividend for whatever reason, whose fundamentals cannot support any significant further increases in the dividend payments.
I would continue screening for potential stocks to add to my buy watchlist on a monthly basis. I might add or remove stocks from my watchlist depending on how undervalued/overvalued I perceive them to be. If I stock in which I have a position drops off my buy watchlist, I would keep holding it, but I won’t be adding to that position until the technical’s and the fundamentals match my criteria.
Based off of this screen, here is my stock lists that I follow (you could also open it in google documents here).

This article appeared in Carnival of Personal Finance #150 , hosted by Lazy Man.

Relevant Articles:

- Dividend Growth Stocks Watchlist
- Five Year Dividend Growth Rates for the High-Yield Dividend Aristocrats
- My Current Watchlist
- Diversification and portfolio allocation

XOM Dividend Analysis

Exxon Mobil Corporation engages in the exploration, production, transportation, and sale of crude oil and natural gas. It also engages in the manufacture of petroleum products, and transportation and sale of crude oil, natural gas, and petroleum products.
The company is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 25 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 14.30 % to its shareholders.

At the same time company has managed to deliver an impressive 21% average annual increase in its EPS since 1998 both through organic growth and share buybacks. Currently, the number of shares is lower than the number of shares at the time of the merger between Exxon and Mobil. The tremendous increase in commodities prices over the past decade has greatly contributed to the strength in financials..

The ROE has increased from 15% in the late 1990’s to over 33% currently.

XOM has continuously paid dividends without interruption or dividend cuts since 1911. Annual dividend payments have increased over the past 10 years by an average of 5.4% annually, which is significantly lower than the growth in EPS. A 5% growth in dividends translates into the dividend payment doubling almost every 13 years. If we look at historical data, going as far back as 1963, XOM has actually managed to double its dividend payment every eleven years on average.

If we invested $100,000 in XOM on December 31, 1997 we would have bought 3269 shares (Adjusted for two 2:1 stock split in July 2001). In February 1998 your quarterly dividend income would have been $670. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1419 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 71 %. If you reinvested it though, your quarterly dividend income would have increased by 112%.

The dividend payout has declined from a high of low 73% in 1999 to a low of low 19% by 2007 A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. The company has returned money to shareholders exclusively through share buybacks, which are typically not as consistent as increases in dividends.

Despite the low DPR and low P/E ratio, I would need a dividend yield of at least 2% to initiate a position in XOM. I would appreciate it greatly if the company increases its payout of dividends over time at the expense of reducing its massive share buybacks. XOM has the potential to achieve an above average dividend growth over the next decade if oil prices remain high.

Disclosure: I do not own shares of XOM.

Relevant Articles:

- APD Dividend Analysis
- USB Dividend Analysis

- GWW Dividend Analysis

- Emerson Electric (EMR) Dividend Analysis

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Blogs and Free Money - April 18,2008

Revolution Money Exchange is an on-line money transfer company that allows people and merchants to exchange money without paying fees (just like Paypal). It’s free to register, add money, send money, receive money, request money and withdraw electronically to a bank account. There are fees to withdraw money by check or to receive a paper statement. If you withdraw money electronically though, there are no fees and it takes about 1-2 business days until you can use the money!
You can get $25 just to try it out before May 15,2008 ! I would get $10 for your referral.
You can sign up here.



Mentions

MoneyNing mentioned my article diversification and portfolio allocation in his weekly review.

Carnivals

There is a new carnival in the blogosphere named "carnival of dividends and passive income", whose "host" is Livingoffdividends. You can submit articles here. Hurry up because the next edition of the carnival is scheduled for April 21!

Blogs

There are several articles from fellow dividend bloggers which I considered interesting.

The Dividend Guy presented Dividend Increases are Down and Dividend Cuts Are Up at his blog. Compared to 2007 the positive dividend actions dropped from 740 to 598.

Dividends4life presented his analysis of NNN, which is a REIT. This dividend achiever makes 7% of his portfolio.

Financial Jungle presented High Yielding Dividend Stocks Flexing Muscles, which is basically a summary of a research from Tweedy Brown.

If you are wondering why salaried income is not enough to make you rich, read Tax Benefits Of Passive Income, posted at the Living Off Dividends blog. That's truly inspiring to go and increase your alternative income streams.

Speaking of passive income, the Money Gardener posted his favorite graph in his article $5.18 per day & growing.

Related Articles:

- Carnivals, Festivals Blogs and Free Money - April 14

- Carnivals, Festivals and Blogs

- Festival of Stocks #82

- Carnival of Money Stories #52

If you like this post, buy me a beer!

GWW Dividend Analysis

W.W. Grainger, Inc. supplies facilities maintenance and other-related products in North America. It operates in three segments: Grainger Branch-based, Acklands Grainger Branch-based (Acklands Grainger), and Lab Safety Supply, Inc. (Lab Safety). Air Products and Chemicals, Inc. offers atmospheric gases, process and specialty gases, performance materials, and equipment and services worldwide.

The company is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 8.00 % to its shareholders.

At the same time GWW has managed to deliver an 8.20% average annual increase in its EPS since 1998.

The ROE has remained in the 10-20% range over the past 10 years. It fell to a low of 10% in 2001 from a high of 18% in 1998 before rebounding strongly to 20% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 9.8% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1978, GWW has actually managed to double its dividend payment every seven years on average.

If we invested $100,000 in GWW on December 31, 1997 we would have bought 2120 shares (Adjusted for two 2:1 stock split in June 1998). In February 1998 your quarterly dividend income would have been $286. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $860 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 159 %. If you reinvested it though, your quarterly dividend income would have increased by 200%.

The dividend payout has remained at or below 40% over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that GWW is attractively valued with its low price/earnings multiple of 17 and low DPR. The current yield is a little low for me at 1.70% though. Thus I would be a buyer only on dips below $70.

Disclosure: I do not own shares of GWW

Related Articles

- APD Dividend Analysis

- USB Dividend Analysis

- ROH Dividend Analysis

- McGraw-Hill (MHP) Dividend Analysis

Diversification and portfolio allocation

Diversification is very important in achieving ones financial goals. My goal is to be able to create an ever increasing stream of passive income through investments in dividend paying stocks which have the history and the capabilities to increase their dividend payments over time. In order to achieve that I have focused on the Dividend Aristocrats as well as the High-Yield Dividend Aristocrats. I plan on exploring the dividend achievers list once I exhaust the two lists previously mentioned. Any foreign stocks would be included after the ever changing three previously mentioned lists are exhausted at a point of time.

In order to achieve my goal I plan on investing equal amounts of funds in at least 50 dividend companies. You could read about my screens here. I will try to rebalance the portfolio on a quarterly basis through my regular monthly contributions to the portfolio as well as properly allocating and reinvesting dividends received ( I do not plan on using the dividend income for at least several years).

Over time there will be companies that cut their dividend for whatever reason. Currently, I plan on disposing of such stocks when they cut their dividends. I do not plan on selling stocks which simply freeze their dividend increases. My research on certain old-time dividend payers like XOM or SNV show that over time companies are more and more likely to freeze their dividend.

Related Articles:

- Diversification Matters

- The case for dividend investing in retirement

- My Strategy

- Why dividends?

APD Dividend Analysis

Air Products and Chemicals, Inc. offers atmospheric gases, process and specialty gases, performance materials, and equipment and services worldwide.
It is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 26 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 11.30 % to its shareholders.

At the same time company has managed to deliver a 7.30% average annual increase in its EPS since 1998.

The ROE has remained in the 10-20%. Range over the past 10 years with the exception of the 2000 lows below 5%.

Annual dividend payments have increased over the past 10 years by an average of 10% annually, which is higher than the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1985, APD has actually managed to double its dividend payment every seven years on average.

If we invested $100,000 in APD on December 31, 1997 we would have bought 2432 shares (Adjusted for two 2:1 stock split in June 1998). In March 1998 your quarterly dividend income would have been $366. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1121 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 153 %. If you reinvested it though, your quarterly dividend income would have increased by 207%.

The dividend payout has remained at or below 50% over our study period with the exception of a brief spike in 2000. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that APD is attractively valued with its low price/earnings multiple of 20 and low DPR. The yield is below my 2% threshold though. I would consider entering into a position below $88.

Disclosure: I do not own shares of APD

Related Articles

- USB Dividend Analysis

- ROH Dividend Analysis

- McGraw-Hill (MHP) Dividend Analysis

- CB Dividend Analysis

Rewards Checking Accounts Overview

Over the past several months the Federal Reserve has cut interest rates several times, decreasing the Fed Funds rate from 5.25% to 2.25% at its most recent meeting. This has lead to a decrease in the interest rates on many high-yield checking accounts. Savers currently have very few options in order to earn some interest on their extra cash - open high-yield accounts at places that offer a competitive yield and get a bonus or put their money in a rewards checking account.

Rewards Checking accounts typically offer an above average yield to customers who meet certain criteria:

1) Residency – Generally the customer must live within the area of the bank which opened their account or at least in its home state. However, there are some banks nationwide that offer rewards checking no matter where in the US you live.

2) Customer also need to have a direct deposit or an automatic bill pay set up

3) They need to access their bank statements online and forgo using paper ones. Familiarity and use of online banking is essential in rewards checking accounts.

4) A certain number of debit card transactions per month needs to be performed, typically 10-12

5) Most banks would limit the balance amount for which the high yield applies, after which the yield would drop to a much lower level. This limit is typically $25,000.

If you don’t meet the requirements, then your rate drops to a low base rate instead. These requirements vary from account to account though so be sure to read all the requirements before opening an account.
There are several positives on opening a rewards checking account:

1) You get an above average interest rate, even higher than most online high-yield accounts

2) Rewards Checking accounts are not tiered accounts that require you to reach a certain balance before you can earn the top yield. Any balance up to the cap will earn the full high-yield as long as you meet the minimum requirements every month.

3) Your account is FDIC insured, which means that if the bank goes bust you are insured up to $100,000 in regular bank accounts and up to $250,000 for certain retirement accounts.

4) Most banks offer you fee reimbursements for using other banks ATMs. Thus if you need cash and you are on the other part of the country you won’t have to worry about finding the right ATM.

5) This product is more profitable for the banks. This means that banks could re-invest profits in the business translating them into more goodies for the consumer.

There are several disadvantages on opening a rewards checking account:

1) If you conduct only 9 debit transactions as opposed to the minimum of 10 or do not fill in any of the other minimum requirements, you will lose your high interest rate for the month.

2) The interest rate on rewards checking is not set in stone for a particular period of time. The bank could change it at any time.

3) There is no incentive to save more money in your rewards checking account above the balance limit. If your balance exceeds the bank limit, you will be paid the rewards checking rate on the first $25,000 but a much lower rate on any amount over that threshold.

4) Rewards checking could be a bait and switch scheme. The above average rates might be used to lure the majority of consumers into online banking, debit card usage and paperless statements. Once the behavior of the customers is changed though, banks could decrease rates in rewards checking significantly.

5) Consumers who use the debit cards forgo earning rewards points if they were using certain rewards credit cards instead of using the debit cards.

So how can banks afford to pay interest rates of 2-3 percentages points above the rates on most high-yield accounts? It’s really simple actually.

First, when they train customers to use debit cards instead of checks, they cut costs on check processing. Banks also earn money each time you use your debit card. Most consumers make a higher number of debit card transactions than the minimum requirements.
Second, by encouraging customers to bank online and receive online statements, banks save on sending paper in the mail (think postage). They also do not need as many branches as a brick and mortars bank, with drive-thru windows and extra tellers. (think administration costs)
Third, rewards checking accounts increase customer’s loyalty to the bank.
And last but not least rewards checking accounts have lead to an increase in NSF fees to consumers who over drafted their accounts.

PS Oh, and while you are on your mid-morning coffee break, why don’t you trot over to the 149th Canival of Personal Finance being hosted over at Happy Rock to see what I and other PF bloggers have to say?

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USB Dividend Analysis

U.S. Bancorp operates as the holding company for U.S. Bank that provides commercial banking and financial services in the United States. It generates various deposit products, including checking accounts, savings accounts, money market savings, and time certificates of deposit accounts.

It is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. One of USB’s stockholders is no other than the Oracle of Omaha, one of the best investors in the world. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 4.60 % to its shareholders. The stock has been trading in a range over the past decade.

At the same time company has managed to deliver a 9.30% average annual increase in its EPS since 1998.

The ROE has been stable above 18% in all years except 2001.

Annual dividend payments have increased over the past 10 years by an average of 12.70% annually, which is significantly above the growth in EPS. A 12.7 % growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1992, USB has actually managed to double its dividend payments every five years. The company last increased its dividend in 2007 by 6.25%.

If we invested $100,000 in USB on December 31, 1997 we would have bought 2680 shares (Adjusted for a 3:1 stock split in May 1998). In February 1998 your quarterly dividend income would have been $370.75. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1576.75 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 207 %. If you reinvested it though, your quarterly dividend income would have increased by 331%.

The dividend payout has increased from 50% in 1998 to more than 65% by the end of the study period. It has remained over 50% for the majority of the study period. A payout above 50% is a warning sign, since it leaves dividends exposed to fluctuations in earnings. Over the past 10 years the stock returned 2.80% on average on each year after the payout was above 50%; the stock returned 12% on average after each year that the dividend payout was below 50%.

Currently, USB looks cheap with its low price/earnings multiple of 13.70 and above-average yield at 5.00%. The high dividend payout ratio however is a warning sign that dividend growth might be less spectacular in the future. I would consider initiating a small position in the bank. I would consider initiating a full position in USB when the payout falls below 50%.

Disclosure: I do not own shares of USB

Related Articles

- Emerson Electric (EMR) Dividend Analysis

- ROH Dividend Analysis
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- CB Dividend Analysis

Emerson Electric (EMR) Dividend Analysis

Emerson Electric Co., a diversified global technology company, engages in designing and supplying product technology and delivering engineering services to industrial and commercial, and consumer markets worldwide. It operates in five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools.
EMR is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 50 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 10.50 % to its shareholders.

At the same time company has managed to deliver a 7.50% average annual increase in its EPS since 1998.

The ROE has increased from its early 2000’s lows at 15-17% to 24% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 7% annually, which is equal to the growth in EPS. The annual growth in dividends has directly traced the fluctuations in EPS growth. A 7% growth in dividends translates into the dividend payment doubling almost every 10 years. If we look at historical data, going as far back as 1989, EMR has actually managed to double its dividend payment every nine years.

If we invested $100,000 in EMR on December 31, 1997 we would have bought 3720 shares (Adjusted for two 2:1 stock split in December 2006). In February 1998 your quarterly dividend income would have been $549. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1419 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 103 %. If you reinvested it though, your quarterly dividend income would have increased by 159%.

The dividend payout increased from 43% in 1998 to more than 65% in the early 2000’s before settling back to 40% in 2007. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that EMR is attractively valued with its low price/earnings multiple of 19 and yield at 2.20%.

Disclosure: I own shares of EMR

Related Articles:

- ROH Dividend Analysis

- McGraw-Hill (MHP) Dividend Analysis
- CB Dividend Analysis
- Clorox (CLX) Dividend Analysis

Dividend Increases in March

Several Dividend Aristocrats have increased their dividends in March. The companies are:

COMPANY TICKER NEW OLD % Change
Air Products & Chem APD 1.76 1.52 15.79%
Chubb Corp CB 1.32 1.16 13.79%
Wal-Mart Stores WMT 0.95 0.88 7.95%

From this list, all three companies seem to fit my fundamental criteria. You could read my analysis on CB and WMT.

Expected dividend increases in April

Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in March: XOM, GWW, PG and JNJ ( Thanks for reminding me about thelast one MoneyGardener). These dividend aristocrats have last increased their dividend payments in April 2007. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only dividend growth stock that has consistently increased its dividend twice in one year since 2003 is STT- State Street.

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- Five Year Dividend Growth Rates for the High-Yield...

ROH Dividend Analysis

Rohm and Haas Company provides various specialty materials primarily for use in the building and construction, electronics, packaging and paper, industrial, transportation, household, personal care, water, and food markets

The company is a dividend aristocrat as well as a major component of the S&P 500 index. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 8.20 % to its shareholders.

At the same time company has managed to deliver a mediocre 2.4% average annual increase in its EPS since 1998.

The ROE has been volatile over the past decade falling as low as a negative 18% in 2002 until settling in the low 20s percent by 2007.

Annual dividend payments have increased over the past 10 years by an average of 8.60% annually, which is above the growth in EPS. A 9% growth in dividends translates into the dividend payment doubling almost every 8 years. If we look at historical data, going as far back as 1989, ROH has actually managed to double its dividend payments every nine years.

If we invested $100,000 in ROH on December 31, 1997 we would have bought 3277 shares (Adjusted for a 3:1 stock splits in 1998). In February 1998 your quarterly dividend income would have been $546.18. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1525.88 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 122 %. If you reinvested it though, your quarterly dividend income would have increased by 179%.

The dividend payout ratio has closely followed the volatility in EPS.

I think that ROH is attractively valued with its low price/earnings multiple of 18 and above-average yield at 2.60%. I think however that the best strategy in accumulating ROH is to spread my purchases over four payments as opposed to investing all my money at once. I would be a buyer at current prices, at dividend yields at 3%, 3.50% and 4% in order to compensate for the lack of any significant EPS growth over the past decade. At 1.48 Dividends per share, the levels come up to $49.33, $42.29 and $37.

Disclosure: I do not own shares of ROH

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