Avoid Cyclical Dividend Growth Stocks

For my retirement strategy, I purchase dividend paying stocks with shareholder friendly managements, that can afford to raise dividends every year. I typically tend to focus on companies which have raised annual distributions every year for over one decade. I do however try to analyze the long-term dividend histories of companies I am researching, in order to determine if there are any past events which could forecast trouble for my income stream in the future. Utilities are notorious for raising distributions for one or two decades, before cutting or freezing them for several years. After that, it is pretty easy to start raising distributions again, and the company might even reach dividend achiever status once again, while early investors might be receiving less in distributions than a decade earlier. In my dividend strategy, I try to avoid these cyclical dividend achievers.

The following companies increased distributions over the past week:

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products, and petrochemicals in North America. This master limited partnership raised quarterly distributions to 62 cents/unit. This represents a 5.10% increase over the Q1 2011 distribution paid to unitholders. Enterprise Products Partners has raised distributions for 14 years in row. Yield: 5.20% (analysis)

Family Dollar Stores, Inc. (FDO) operates a chain of self-service retail discount stores primarily for low and middle income consumers in the United States. The company raised its quarterly distribution by 16.70% to 21 cents/share. This dividend aristocrat has boosted distributions for 36 years in a row. The current yield is1.50%, but my yield on cost is more than twice that much (analysis)

ONEOK, Inc. (OKE), a diversified energy company, operates as a natural gas distributor primarily in the United States. It operates through three segments: ONEOK Partners; Distribution; and Energy Services. The company raised its quarterly distribution by 9% to 61 cents/share. ONEOK has boosted distributions for 10 years in a row. The current yield is 2.80% (analysis)

ONEOK Partners, L.P. (OKS) engages in the gathering, processing, storage, and transportation of natural gas in the United States. This master limited partnership raised its quarterly distributions to 61 cents/unit, which represents a 7% increase over the distribution paid in Q1 2011. ONEOK Partners has boosted distributions for 7 years in a row. The current yield is 4.40%

The McGraw-Hill Companies, Inc. (MHP) provides various information services for financial, educational, and business information markets worldwide. It operates in four segments: Standard & Poor’s (S&P), McGraw-Hill Financial, McGraw-Hill Education (MHE), and McGraw-Hill Information & Media (I&M). The company raised its quarterly distribution by 2% to 25.50 cents/share. This dividend aristocrat has boosted distributions for 39 years in a row. The current yield is 2.20% (analysis)

CenterPoint Energy, Inc. (CNP) operates as a public utility holding company in the United States. The company raised its quarterly distribution by 2.50% to 20.25 cents/share. CenterPoint Energy has boosted distributions for 7 years in a row. The current payment is still below the 37.50 cents/share quarterly dividend paid between 1992 and 2002. Yield: 4.30%

Dominion Resources, Inc. (D), together with its subsidiaries, engages in producing and transporting energy in the United States. It operates in three segments: DVP, Dominion Generation, and Dominion Energy. The company raised its quarterly distribution by 7.10% to 52.75 cents/share. Dominion Resources has boosted distributions for 9 years in a row. The company had boosted distributions for 19 consecutive years as of 1995, before it froze the distributions until 2004. Yield: 4.20%

Pall Corporation (PLL), together with its subsidiaries, manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. The company raised its quarterly distribution by 20% to 21 cents/share. Pall Corporation has boosted distributions for 8 years in a row. The company ended its 20 year streak of dividend increases in 2002, when it cut distributions by 47% to 9 cents/share. Yield: 1.40%

AmeriGas Partners, L.P. (APU), through its subsidiary, AmeriGas Propane, L.P., operates as a retail and wholesale distributor of propane gas in the United States. The company raised its quarterly distribution by 76.25 cents/unit, which is an 8.10% increase over the Q1 2011 distribution. AmeriGas Partners has boosted distributions for 8 years in a row. Yield: 7.20%

The Williams Companies, Inc. (WMB), through its subsidiaries, engages in finding, producing, gathering, processing, and transporting natural gas primarily in the United States. The company increased its quarterly distribution by 3.50% to 25.875 cents/share.The company has raised distributions for 9 years in a row. Yield: 3.60%

TransMontaigne Partners L.P. (TLP) operates as a terminaling and transportation company. It provides integrated terminaling, storage, transportation, and related services for customers engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers, and other liquid products. This master limited partnership raised quarterly distributions to 63 cents/unit, which represented a 3.30% increase over the distribution paid in Q1 2011. TransMontaigne Partners has boosted distributions for 7 years in a row. Yield: 7.30%

In order to generate sustainable dividend income, I try to avoid cyclical dividend achiever. For example ONEOK (OKE) cut its dividend payment in 1989 to from 16 cents/share to 7.50 cents/share. The distribution was not restored until 1998. It is normal for a company with a long streak of dividend increases to pause them, and that would make the stock a hold, but would not necessarily mean it is a sell.

Full disclosure: Long EPD, OKS, FDO, D, MHP

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