I also use this process in order to identify hidden dividend gems for further research.
I started with the list of all dividend increases for the week, and then narrowed it down by focusing only on those companies that have managed to grow dividends for at least a decade. I came up with a list of nine companies for today’s review. The next step involves a brief analysis of each company, analysis of trends in earnings and dividends, followed by a brief take on valuation. The goal is to analyze not only historical dividend growth, but try to determine if it was supported by growth in fundamentals. It is helpful to evaluate the latest dividend hike against the historical dividend growth. We are looking for companies that grow earnings, grow dividends and grow intrinsic values over time. However, we also want to get those companies only if the valuation is right. Even the best company in the world is not worth overpaying for.
The nine dividend growth companies which raised dividends over the past decade include:
Kimberly-Clark Corporation (KMB), together with its subsidiaries, manufactures and markets personal care, consumer tissue, and professional products worldwide. The company raised its quarterly dividend by 3.10% to $1/share. This dividend champion has rewarded shareholders with a raise for 46 years in a row. Over the past decade, it has managed to grow distributions at an annual rate of 6.70%/year. The company managed to grow earnings per share between 2007 and 2017 from $4.09 to $6.23. Analysts expect Kimberly-Clark to earn $6.97/share in 2018. The stock is attractively valued at 17.50 times forward earnings, has an adequately covered dividend and yields 3.30%.
3M (MMM) is a diversified global company provides enhanced product functionality via coatings, sealants, adhesives and other chemical additives. The company raised its quarterly dividend by 15.70% to $1.36/share. This dividend king has paid dividends without interruption for more than 100 years. The latest increase marks the 60th consecutive year of annual increases for 3M. Over the past decade, the company has managed to grow its distributions at an annual rate of 9.40%/year. The company managed to grow earnings per share between 2007 and 2017 from $5.60 to $7.93. Analysts expect 3M to earn $10.40/share in 2018. Currently, the stock is overvalued at 24.90 times forward earnings and yields 2.10%. 3M may be worth a closer look on dips below $208/share.
Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, electronics and performance materials, equipment, and services worldwide. The company raised its quarterly dividend by 15.80% to $1.10/share. This marked the 36th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 9.60%/year. The company managed to grow earnings per share between 2008 and 2017 from $4.15 to $5.16. Analysts expect Air Products and Chemicals to earn $7.06/share in 2018. Currently, the stock is overvalued at 24.10 times forward earnings and yields 2.60%. At this time I am not interested in adding to the stock due to slow earnings growth, and the high valuation. Plus, I already have a good sized position there.
Northrop Grumman Corporation (NOC), a security company, provides systems, products, and solutions in autonomous systems, cyber, strike, logistics and modernization, and command, control, communications, computers, intelligence, surveillance, and reconnaissance to government and commercial customers worldwide. It has three segments: Aerospace Systems, Mission Systems, and Technology Services. The company raised its quarterly dividend by 10% to $1.10/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 11.30%/year. The company managed to grow earnings per share between 2007 and 2016 from $5.12 to $12.19. Analysts expect Northrop Grumman to earn $14.48/share in 2018. Currently, the stock is overvalued at 23.20 times forward earnings and yields 1.30%. It may be worth a second look on dips below $290/share. A large tailwind for defense contractors over the past decade was the fact companies were able to buyback massive amounts of shares outstanding over the past decade, particularly when P/E multiples were much much lower. The impact of retiring shares at a P/E of 10 on earnings per share is much more pronounced than when you retire shares at a P/E of 25. Therefore, future earnings per share growth will likely have to come from organic sources.
Praxair, Inc. (PX) produces and distributes industrial gases. It operates through North America, Europe, South America, Asia, and Surface Technologies segments. The company raised its quarterly dividend by 4.80% to 82.50 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend aristocrat. The ten year dividend growth rate is 10.10%/year. The company managed to grow earnings per share between 2007 and 2017 from $3.62 to $4.31. Analysts expect Praxair to earn $6.50/share in 2018. The stock is overvalued as it sells for 25.50 times forward earnings and yields 2%. It may be worth a second look on dips below $130/share.
Rollins, Inc. (ROL), through its subsidiaries, provides pest and termite control services to residential and commercial customers. Rollins boosted its quarterly dividend by 21.70% to 14 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has manage to grow its annual dividend at a rate of 17.90%/year. The company managed to grow earnings per share between 2007 and 2017 from $0.28 to $0.82. Analysts expect Rollins to earn $1.02/share in 2018. Currently, the stock is overvalued at 49.60 times forward earnings and yields 1.10%. It may be worth a closer look on dips below $21/share.
UMB Financial Corporation (UMBF), a bank holding company, provides various banking and other financial services. It operates through three segments: Bank, Institutional Investment Management, and Asset Servicing. The company raised its quarterly distribution by 5.50% to 29 cents/share. This dividend champion has been rewarding shareholders with a raise for 27 consecutive years. The ten year annual dividend growth is 6.40%/year. The company managed to grow earnings per share between 2007 and 2017 from $1.77 to $3.73. Analysts expect UMB Financial to earn $4.46/share in 2018.Currently, the stock sells at 17.20 times forward earnings and yields 1.50%. This P/E multiple seems a little high for a financial company. It may be worth a closer look at a P/E of 15 or 16.
J.B. Hunt Transport Services, Inc. (JBHT), together with its subsidiaries, provides surface transportation and delivery services in the continental United States, Canada, and Mexico. It operates through four segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), and Truck (JBT). The company raised its quarterly dividend by 4.30% to 24 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. In the past decade, the company has managed to boost its annual dividends at an annual rate of 9.80%/year. The company grew earnings per share over the past decade, from $1.55/share in 2007 to $3.81/share by 2016. Analysts expect J.B. Hunt to earn $5.26/share in 2017. Currently, the stock is overvalued at 23.80 times forward earnings and yields 0.80%. JBHT 23 to 24 0.80% 15 years 9.80%/year $5.26/share
Cincinnati Financial Corporation(CINF) engages in the property casualty insurance business in the United States. It operates through five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. The company raised its quarterly dividend by 6% to 53 cents/share. This marked the 57th consecutive annual dividend increase for this dividend king. Over the past decade, this company has managed to boost its dividends at an annual rate of 3.50%/year. The company was unable to grow earnings per share over the past decade as its earnings in 2016 at $3.55/share are lower than 2007’s earnings of $4.97/share. Analysts expect Cincinnati Financial to earn $2.67/share in 2017, which is even lower. Currently, the stock is overvalued at 29 times forward earnings and yields 2.70%. I am not interested in this company at this time due to high valuation, lack of earnings growth and high payout ratio.
Relevant Articles:
- Dividend Champions, Contenders & Challengers: The most complete list of US dividend growth stocks available
- Dividend Aristocrats for 2018 Revealed
- 2018 Dividend Kings List
- Dividend Achievers Offer Income Growth and Capital Appreciation
