I typically focus on companies that have raised dividends for at least a decade. I rarely violate this principle, but when I do, I have found out to have mixed success.
I also evaluate trends in earnings, dividends and look at valuations in order to determine whether a company is worth researching further today. In general, dividend growth investors want to acquire shares in a quality company with a long record of annual dividend growth, which also sells at an attractive valuation. The goal is to invest in such a company that can grow earnings over time. This provides the fuel behind future dividend increases, which pay for expenses in retirement.
Over the past couple of weeks, there were several notable companies raising dividends to shareholders. The companies include:
Federal Realty Investment Trust (FRT) operates as a real estate investment trust, which engages in the ownership, management, development, and redevelopment of retail and mixed-use properties. This REIT raised its quarterly dividend by 2% to $1/share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. This Real Estate Investment Trust prides itself in its consistency of operations, which have allowed it to raise dividends for 50 years in a row. Annual distributions rose from 12 cents/share in 1967 to an estimated $4/share at the new distribution rate.
Federal Realty Investment Trust has managed to grow dividends at a rate of 5.40%/year over the past decade. This was supported by growth in Funds From Operations from $3.26/share in 2006 to $5.65/share in 2016. Currently, this REIT is overvalued at 23.60 times FFO and yields 3%. The dividend is safe at an FFO payout ratio of 70.80%. However, I would prefer a lower entry valuation that is below 20 times FFO, preferably 15 - 16 times FFO.
International Flavors & Fragrances Inc. (IFF) creates, manufactures, and supplies flavors and fragrances for use in various consumer products. It operates through two segments, Flavors and Fragrances. The company raised its quarterly dividend by 7.80% to 69 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. The company managed to grow dividends at a rate of 12.10%/year over the past decade. This dividend growth was supported by the rise in earnings from $2.82/share in 2007 to $5.05/share in 2016. The company is expected to further grow earnings per share to $5.76 in 2017. Currently, the stock is overvalued as it sells at 23.50 times forward earnings and yields 2.10%. With a forward dividend payout ratio of 48%, we know that the dividend is safe. This quality company is always overvalued. I would be interested on dips below $115/share.
American States Water Company (AWR) provides water and electric services to residential, industrial, and other customers in the United States. It operates through three segments: Water, Electric, and Contracted Services. The company raised its quarterly dividend by 5.40% to 25.50 cents/share. This marked the 63rd consecutive annual dividend increase for this dividend king. The company managed to grow dividends at a rate of 7%/year over the past decade. This dividend growth was supported by the rise in earnings from $0.81/share in 2007 to $1.62/share in 2016. The company is expected to further grow earnings per share to $1.69 in 2017. Currently, the this otherwise quality stock is overvalued at 24.80 times forward earnings and yields 2.10%. At a forward dividend payout ratio of 60%, we know that the dividend is safe. It is further secured from the stable nature of the earnings generated by the water utility business. I would be interested in this dividend king on dips below $34/share.
Aqua America, Inc. (WTR) operates regulated utilities that provide water or wastewater services in the United States. It offers water and wastewater services through operating and maintenance contracts with municipal authorities and other parties. The company raised its quarterly dividend by 7% to 20.47 cents/share. This marked the 26th consecutive annual dividend increase for this dividend champion. The company managed to grow dividends at a rate of 7.60%/year over the past decade. This dividend growth was supported by the rise in earnings from $0.57/share in 2007 to $1.32/share in 2016. The company is expected to further grow earnings per share to $1.36 in 2017. Currently, the stock is overvalued at 24.80 times forward earnings and yields 2.40%. At a forward dividend payout ratio of 60%, we know that the dividend is safe. It is further secured from the stable nature of the earnings generated by the water utility business. The stock would be more attractive on dips below $27/share.
Kellogg Company (K) manufactures and markets ready-to-eat cereal and convenience foods in the United States and internationally. The company operates through U.S. Morning Foods, U.S. Snacks, U.S. Specialty, North America Other, Europe, Latin America, and Asia Pacific segments. The company raised its quarterly dividend by 3.80% to 54 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. The company managed to grow dividends at a rate of 6%/year over the past decade. Earnings per share went from $2.76 in 2007 to an estimated $3.91 for 2017. The company's earnings report are very difficult to analyze, because they have a wide gap between their GAAP and non-GAAP earnings. Currently, the stock sells at 17.80 times forward earnings and yields 3.20%. The dividend appears safe with a forward payout ratio of 55%. However, the lack of growth is troublesome. As a result, I view the company's stock as a hold, with dividends to be reinvested elsewhere.
The Hershey Company (HSY), manufactures and sells confectionery products. The company operates through two segments, North America, and International and Other. The company raised its quarterly dividend by 6.10% to 65.60 cents/share. This marked the 9th consecutive annual dividend increase for this dividend challenger. The company managed to grow dividends at a rate of 8.80%/year over the past decade. This dividend growth was supported by the rise in earnings from $0.93/share in 2007 to $3.34/share in 2016. The company is expected to further grow earnings per share to $4.82 in 2017. Currently, the stock is overvalued at 21.80 times forward earnings and yields 2.50%. I believe that Hershey is worth a second look in the mid $80s.
Wells Fargo & Company (WFC) is a diversified financial services company, which provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. The company raised its quarterly dividend by 2.60% to 39 cents/share. This marked the 8th consecutive annual dividend increase for this dividend challenger. The company managed to grow dividends at a rate of 3.40%/year over the past decade. Of course, this period included the Global Financial Crisis, where it had to slash its dividend to the bone in 2009. This dividend growth was supported by the rise in earnings from $2.38/share in 2007 to $3.99/share in 2016. The company is expected to further grow earnings per share to $4.12 in 2017. The most recent dividend increases for Wells Fargo have been uninspiring. Currently, the stock is cheap at 12.80 times forward earnings and yields 2.80%. While a cheap valuation is always good, without solid growth in the underlying earnings per share, we can't see much in terms of dividend growth or rise in intrinsic values.
Republic Services, Inc. (RSG) provides non-hazardous solid waste collection, transfer, recycling, disposal, and energy services for commercial, industrial, municipal, and residential customers in the United States and Puerto Rico. The company raised its quarterly dividend by 7.80% to 34.50 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. The company managed to grow dividends at a rate of 12.20%/year over the past decade. Earnings per share rose from $1.51 in 2007 to $1.78/share in 2016. The company is expected to earn $2.39/share in 2017. Currently, the stock is overvalued at 27 times forward earnings and yields 2.20%. The company may be worth a second look on dips below $47/share.
The following two companies with recent dividend increases below are spin-offs from a legacy investment I made in Kraft almost a a little shorter than a decade ago.
Mondelez International, Inc. (MDLZ), through its subsidiaries, manufactures and markets snack food and beverage products worldwide. The company raised its quarterly dividend by 15.80% to 22 cents/share. It has managed to grow dividends per share all the way from the quarterly distribution of 13 cents/share paid at the time of Kraft’s split into two companies in 2012. This marks the fourth consecutive annual dividend increase for the company, which was formed from the Kraft’s split in 2012. The stock is overvalued at 20.50 times forward earnings today and yields 2%.
The Kraft Heinz Company (KHC) manufactures and markets food and beverage products in the United States, Canada, Europe, and internationally. The company raised its quarterly dividend by 4.20% to 62.50 cents/share. This marks the fourth consecutive annual dividend increase for the company, which was formed from the Kraft’s split in 2012, and the subsequent merger with Heinz.The stock is overvalued at 23.60 times forward earnings today and yields 2.90%.
Full Disclosure: Long KHC, MDLZ, WFC, HSY, K,
Relevant Articles:
- How to value dividend stocks
- Why do I use a P/E below 20 for valuation purposes?
- How to read my weekly dividend increase reports
- Five Things to Look For in a Real Estate Investment Trust
