Factors the boards of directors considers when setting the dividend include future earnings expectations, payout ratio, and dividend yield relative to those at peer companies, as well as returns available on other income oriented investments.
I then take those dividend hikes, and evaluate them against the past record, and look at the valuations to evaluate for potential entry points.
Over the past week, there were four dividend growth companies that announced their intent to reward their long-term investors with a dividend raise. The companies include:
Becton, Dickinson (BDX)
Becton, Dickinson and Company (BDX) develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products worldwide. It operates in two segments, BD Medical and BD Life Sciences. The company raised its quarterly dividend by 2.70% to 75 cents/share. This is the forty-sixth consecutive fiscal year in which the company has raised its dividend. The new yield for this dividend champion is 1.30%. I found the following note from the dividend press release interesting:
"We are very pleased with our strong fiscal 2017 results, which demonstrate our ability to overcome multiple headwinds and deliver on our commitments. We enter fiscal 2018 with continued momentum in our core and look forward to the successful closing of the C.R. Bard acquisition. We believe there are significant opportunities ahead for BD as we continue to deliver innovative healthcare solutions to our customers and their patients around the world," said Vincent A. Forlenza, Chairman and CEO. "This is the forty-sixth consecutive fiscal year in which we have raised our dividend. This increase reflects our confidence in our long-term outlook, as well as our ongoing commitment to create value and return capital to our shareholders."
The latest dividend increase is lower than the ten year average of 12.20%/year. I believe that the small dividend increase is due to the upcoming large acquisition of C.R. Bard (BCR), two thirds of which will be paid for with cash
Analysts expect this dividend champion to earn $10.55/share in 2018, which is an increase from the $4.46/share it earned in 2008. The stock is overvalued at 21.50 times forward earnings. Becton Dickinson may we worth a second look on dips below $210/share.
Hormel Foods (HRL)
Hormel Foods Corporation (HRL) produces and markets various meat and food products worldwide. The company operates in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. Hormel raised its quarterly dividend by 10.30% to 18.75 cents/share. This is the 52nd consecutive year in which Hormel increased its dividend. The new yield is 2.20%. Over the past decade, this dividend king has managed to boost distributions at an annual rate o 15.30%/year.
Analysts expect Hormel to earn $1.64/share in 2017, which is an increase from the 54 cents/share it earned in 2007. The stock is slightly overvalued at 21 times forward earnings. It may be worth a second look on dips below $33/share.
Sysco Corporation (SYY)
Sysco Corporation (SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry. It operates through three segments: U.S. Foodservice Operations, International Foodservice Operations, and SYGMA. The company hiked its quarterly dividend by 9.10% to 36 cents/share. The new yield is 2.60%. The dividend has increased for 49 years in a row.
Sysco is committed to returning value to our stockholders,” said Bill DeLaney, Sysco’s chief executive officer. “Sysco has paid a cash dividend every quarter since our founding as a public company in 1970. Since then, the dividend has increased 49 times
The latest dividend hike was higher than the ten year average dividend growth of 6.20%/year. Analysts expect Sysco to earn $2.76/share in 2018. The stock looks fairly valued below $55/share, assuming we use forward earnings estimates. However, earnings per share have been relatively flat over the past decade, rising from $1.81/share in 2008 to $2.08 in 2016. It would be interesting to see if the company can materially earn more than $2/share.
South Jersey Industries (SJI)
South Jersey Industries, Inc. (SJI), through its subsidiaries, provides energy-related products and services. The company engages in the purchase, transmission, and sale of natural gas. The company raised its quarterly dividend by 2.80% to 28 cents/share. The new yield is 3.40%. With this announcement, SJI has increased its dividend for 19 consecutive years. I found the following note from the dividend press release interesting:
"The increase announced today is supported by the progress we've made towards achieving our strategic plan and reflects the commitment of our company and our Board to a secure and growing dividend," said President and CEO Michael J. Renna. "Significant growth within our existing gas utility business, coupled with the prospect of dramatically increasing SJI's regulated earnings through the Elizabethtown Gas and Elkton Gas acquisitions, warranted the dividend action."
The rate of increase is lower than the 9% annual dividend increases over the past decade. Analysts expect it to earn $1.17/share in 2018. Currently the stock is overpriced at 28 times forward earnings. Even if we use 2016’s EPS of $1.56/share, the stock is still overvalued above 20 times earnings. In contrast, the stock earned $1.05/share in 2007.
York Water (YORW)
The York Water Company impounds, purifies, and distributes drinking water. It owns and operates three wastewater collection systems and two wastewater treatment systems. The company raised its quarterly dividend by 4% to 16.66 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. York Water is the oldest investor-owned utility in the nation, and is believed to have the longest record of consecutive dividends in America, having paid dividends for over 200 years. The new yield is 1.85%. The ten year dividend growth rate is 3.30%/year.
The company is expected to earn 99 cents/share in 2017, which is up from 57 cents/share it earned in 2007. Unfortunately, the stock is massively overvalued, selling at 36 times forward earnings.
Relevant Articles:
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Kings List for 2017
- Dividend Champions - The Best List for Dividend Investors
- Dividend Aristocrats List for 2017