Six Confident Dividend Increases Despite Government Turmoil

The past week was characterized by the possibility of default by the US government. Luckily, the debt ceiling debate and the possibility of US defaulting on its obligations has been postponed to early 2014. A few corporations I follow however, tend to have a more long-term view of the economy. They proved that by approving dividend increases to their shareholders. Typically, dividend growth companies that expect increases in earnings in the next two – five years tend to approve dividend increases to shareholders.

The companies that announced dividend increases so far this week include:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company raised its quarterly dividends by a whooping 57% to 22 cents/share. This marked the 41st consecutive annual dividend increase for this dividend aristocrat. In early 2013, it spun-off Abbvie (ABBV), which explains the reduction in dividend payments. Every shareholder of Abbott at 12/31/2012 received a share of Abbvie, which currently pay 40 cents/quarter. Before the spin-off, the legacy Abbott paid 51 cents/share in quarterly dividends. Therefore, I am glad I bought Abbott in late 2012, and stayed with it. My dividend income is essentially up by over 20% in this position alone. You can read more about my take on the spin-off here. The yield on Abbott Laboratories today is 2.40%.

Kinder Morgan Energy Partners, L.P. (KMP) operates as a pipeline transportation and energy storage company in North America. This MLP managed to raise distributions to $1.35/unit, which is an increase of 7% over the distributions paid this time in 2012. This dividend achiever has grown distributions for 17 years in a row. Over the past decade, KMP has managed to raise distributions by 7.50%/year. I have exposure to KMP through my investment in Kinder Morgan Management (KMR), which holds limited partner interests in the partnership. With KMR, I do not have to worry about K-1 filings, as distributions are received directly as partial shares, which are treated like non-taxable stock splits from a taxation standpoint. I also like the fact that KMR always trades at a discount to KMP, hence I am able to get the same exposure for a lower price. I like the consistency and length of distributions, and the yield of 6.70%. Check my analysis of Kinder Morgan Partners.

Kinder Morgan, Inc. (KMI) owns and operates energy transportation and storage assets in the United States and Canada. The general partner behind Kinder Morgan Partners and the El Paso Pipeline raised its quarterly dividends to 41 cents/share. This was a year over year increase of 14%. I expect Kinder Morgan to be able to grow dividends by 9 – 12%/year over the next several years, fueled by growth in distributable cash flows from the partnerships it manages. As a general partner, it earns 50% of incremental distributable cash flows from both Kinder Morgan Partners and El Paso Energy Pipeline. Since going public in 2011, it has not failed to disappoint investors with solid increases in dividends. Despite the fears that certain analysts are trying to create among investors, this is a solid company with a solid manager, whose wealth is tied into this entity. I like the yield of 4.70% and the solid growth prospects of the entity, which is why it is my largest holding as of 9/30.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The partnership raised its quarterly distributions to 69 cents/unit, which is an increase of 6% over same time last year. The partnership is a dividend achiever, which has managed to boost distributions to loyal unit holders for fourteen years in a row. Over the past decade, it has managed to boost distributions by 6.70%/year. I made a controversial trade this year, where I sold 2/3 of my position in the partnership, and split the proceeds equally into Kinder Morgan Management (KMR), Kinder Morgan Inc (KMI) and ONEOK Partners (OKS). This was driven purely by the high valuation of EPD. In retrospect, I probably could have simply held on to Enterprise, which is a stable organization. However, even the best of us sometimes make mistakes and fail to stick to their long-term buy and hold nature. The new yield of 4.40% however is rather low, especially when Kinder Morgan Partners has slightly higher distributions growth and a much higher current yield. That being said, Enterprise is a good partnership to hold on to for the next decade, as it has some of the best distribution payout coverages in the MLP sector. Check my analysis of Enterprise Product Partners.

Omega Healthcare Investors, Inc. (OHI) operates as a real estate investment trust (REIT) in the United States. This REIT boosted quarterly distributions to 48 cents/share. The new dividend is 9.10% higher than the one paid in Q4 2012. This dividend achiever has raised distributions for ten years in a row. Over the past five years, it has managed to increase dividends by 9.40%/year. I purchased shares in the REIT in 2013, after selling my position in Universal Healthcare Realty Trust (UHT). When I analyzed this REIT a few months ago, I liked the opportunities for growth in FFO from its acquisitions strategy. I also like the fact that with Omega Healthcare I get not only a high current yield at 5.80%, but also the possibility for strong dividend growth.

Northwest Natural Gas Company (NWN) stores and distributes natural gas primarily in Oregon, Washington, and California. The company increased its quarterly dividends by 1% to 46 cents/share. This marked the 58th year of consecutive dividend increases for this dividend champion. Over the past decade, the company has managed to boost distributions by 3.60%/year. While I am a big fan of companies that can build a long streak of consecutive dividend increases, I am not a fan of anemic dividend increases simply for the sake of maintaining dividend growth streaks. If a company cannot grow dividends faster than inflation, and provide decent yields, I usually wait to enter during more advantageous times. I usually look for companies that have the capacity to grow earnings and grow dividends faster than inflation. Despite the high yield of 4.30%, I think this company is a hold at the very best.

Full Disclosure: Long KMR, ABT, ABBV, KMI, EPD, OKS, OHI

Relevant Articles:

- Should dividend investors hold on to Abbott (ABT) and Abbvie (ABBV) following the split?
- Abbott Laboratories: Quality Dividend Aristocrat for Long-Term Investors
- Five Things to Look For in a Real Estate Investment Trust
- The Dividend Kings List Keeps Expanding
- Dividend Aristocrats List