Seven Dividend Growth Stocks Delivering Strong Raises and High Returns to Shareholders

There is a tradeoff between dividend yield and dividend growth. Investors who start with a higher yield, sacrifice future dividend growth. Investors who choose a lower dividend yield, expect higher dividend growth over time. Neither the future yield, nor the future growth are guaranteed of course. This is where it makes sense to hold different types of dividend growth stocks. My observation over the past decade have been that the companies with low yields are generally ignored by a lot of dividend investors. This is unfortunate, because many of these companies end up delivering outstanding total returns, and high future yields on cost for those patient enough to recognize their potential early. If you are a younger investor, it may make more sense to focus on companies with higher dividend growth, which have a lower yield today. Investors who are retired may shun lower yielding equities, because they are mostly interested in current income that meets their needs. Long term readers know that we go beyond broad generalizations, and dissect trends in financial performance and valuation in order to select the best companies at the best price.

Over the past week, there were several companies that raised their dividends to shareholders. I narrowed the list down to those that have managed to increase dividends for at least a decade. Most of those companies have lower yields, but pretty good rates of historical dividend growth. The companies include:


Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company. It operates through three segments: Orthopaedics; MedSurg; and Neurotechnology and Spine. The company raised its quarterly dividend by 11.80% to 42.50 cents/share. This marked the 24th consecutive annual dividend increase for this dividend contender. Over the past decade, Stryker has managed to boost dividends at an average rate of 31.40%/year. The company has an impressive earnings growth record as well. Currently, the stock is slightly overvalued at 20.20 times forward earnings and yields 1.50%. I would need to refresh my analysis of the company, but it starts to look promising on dips below $115/share.

Ecolab Inc. (ECL) provides water, hygiene, and energy technologies and services for customers worldwide. The company operates in three segments: Global Industrial, Global Institutional, and Global Energy. One of the largest shareholders in the company is Bill Gates. The company raised its quarterly dividend by 5.70% to 37 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. Over the past decade, Ecolab has managed to boost dividends at an average rate of 14.20%/year. Currently, the stock is overvalued at 27.30 times forward earnings and yields 1.20%. This valuation is somewhat justified, given the rapid growth in earnings per share over the past decade. I want to remain disciplined however, and I want to avoid chasing growth. The stock has been overvalued for quite some time. As a result, I would be more interested in the company on dips below $89/share.

Edison International (EIX), through its subsidiaries, generates and supplies electricity in the United States. The company raised its quarterly dividend by 12.50% to 54 cents/share. This marked the 14th consecutive annual dividend increase for this dividend contender. Over the past decade, Edison International has managed to boost dividends at an average rate of 5.30%/year. I do not like the slow rate of earnings growth from $3.28 in 2006 to an estimated $3.91/share in 2016. Currently, the stock is selling at 17.90 times forward earnings and yields 3.10%. In order to be compensated for the slow prospective earnings and dividend growth, investors should demand a lower valuation or a higher starting yield on Edison International.

J&J Snack Foods Corp. (JJSF) manufactures, markets, and distributes various nutritional snack foods and beverages to the food service and retail supermarket industries in the United States, Mexico, and Canada. The company operates through three segments: Food Service, Retail Supermarkets, and Frozen Beverages. The company raised its quarterly dividend by 7.70% to 42 cents/share. This marked the 13th consecutive annual dividend increase for this dividend contender. Over the past decade, J&J Snack Foods has managed to boost dividends at an average rate of 19.10%/year. This has been supported by strong earnings growth over the past decade, with the company more than doubling earnings per share. Investors expect that this growth will continue, since the stock is overvalued. Currently, the stock is overvalued at 31.80 times earnings and yields 1.30%. I would be interested in the company on dips below $86/share.

C.H. Robinson Worldwide, Inc. (CHRW), a third party logistics company, provides freight transportation services and logistics solutions to companies in various industries worldwide. The company raised its quarterly dividend by 4.70% to 45 cents/share. This marked the 19th consecutive annual dividend increase for this dividend contender. Over the past decade, C.H. Robinson Worldwide has managed to boost dividends at an average rate of 18%/year. This was driven by the growth in earnings per share from $1.53 in 2006 to an estimated $3.58 in 2016. Currently, the stock is overvalued at 21.50 times forward earnings and yields 2.30%. I would put this company on my list for further research.

The Hanover Insurance Group, Inc. (THG), through its subsidiaries, provides various property and casualty insurance products and services in the United States and internationally. It operates through four segments: Commercial Lines, Personal Lines, Chaucer, and Other. The company raised its quarterly dividend by 8.70% to 50 cents/share. This marked the 12th consecutive annual dividend increase for this dividend contender. Over the past decade, Hanover Insurance Group,has managed to boost dividends at an average rate of 21.10%/year. Currently, the stock is cheap 14.60 at times forward earnings and yields 2.20%. I like the fact that dividend growth was supported by earnings growth as well. I will put the stock on my list for further research.

Erie Indemnity Company (ERIE) operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. The company provides sales, underwriting, and policy issuance services for the policyholders on behalf of the Erie Insurance Exchange. The company raised its quarterly dividend by 7.20% to 78.25 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Over the past decade, Erie Indemnity has managed to boost dividends at an average rate of 7.70%/year. Currently, the stock is overvalued at 29 times earnings and yields 2.70%. The company has not been able to grow earnings per share by much over the past decade. This is unfortunate, since it managed to retire approximately 20% of shares outstanding during the same time. While I believe that insurers will benefit if interest rates were to increase from here, I do not find the valuation to be attractive for Erie right now.

Full Disclosure: None

Relevant Articles:

- Pure Dividend Growth Stocks I wish I owned
- S&P Dividend Aristocrats Index – An Incomplete List for Dividend Growth Investors
- Types of dividend growth stocks
- The Tradeoff between Dividend Yield and Dividend Growth