As part of my monitoring process, I review the list of dividend increases every week. I use this list to check for dividend increases for companies I own, as well as monitor companies I am interested in researching at the right valuation.
I narrowed the list down to focus only on companies that have rewarded their shareholders with a dividend raise for at least ten years in a row. I want to focus my attention on companies that have managed to grow dividends over a full economic cycle. I also review each company, in order to determine whether past dividend growth was sustainable, and it came mostly from earnings growth. I am not interested in companies that grow dividends by mere expansion of the dividend payout ratio, while their earnings per share stagnate.
Last but not least, I look for an attractive entry valuation. Even the best company in the world is not worth buying at an inflated price. As a result, I try to avoid purchasing companies above 20 times earnings.
The companies that raised dividends over the past week, and met the above criteria include:
Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and sells consumer products worldwide. It operates through two segments, Oral, Personal and Home Care; and Pet Nutrition. The company raised its quarterly dividend by 5% to 42 cents/share. Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895. This dividend king has increased payments to common shareholders every year for 56 years.
Over the past decade, Colgate-Palmolive has managed to increase dividends at an annual rate of 8.60%/year. The company managed to boost earnings at an annual rate of 4.90% over the past decade. Unfortunately, Colgate-Palmolive has not been able to grow earnings over the past five years. In addition, the stock is selling above 20 times earnings – both using the ones for 2017 and the forward earnings of $3.17/share. At this stage I will hold on to my existing position, but would likely not add to the stock.
General Dynamics Corporation (GD) operates as an aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems. The company raised its quarterly dividend by 10.70% to 93 cents/share. The company has managed to grow dividends for 27 years in a row. The 10.7 percent increase is consistent with increases over the past five years for this dividend champion. The ten year annual dividend growth is 11.50%/year. Earnings per share rose by 6.90%/year over the past decade however. The excess dividend growth was a result of the increase in dividend payout ratio. The company also repurchased a ton of stock over the past decade, when valuations were much lower too. Going forward, we may get increased defense spending with the current administration. Further, share buybacks may further grow earnings per share.
Currently, the stock is a little overvalued at 22.80 times earnings and spots a dividend yield of 1.60%. The stock may be worth a second look on dips below $199/share.
Ross Stores, Inc. (ROST), together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. The company raised its quarterly dividend by 40.60% to 22.50 cents/share.
I love how the company's CEO described this event: “The increases to our stock repurchase and dividend programs for 2018 reflect the current strength of our balance sheet and our ongoing ability to generate significant amounts of cash after funding growth and other capital needs of the business. We have repurchased stock as planned every year since 1993 and also raised our cash dividend annually since 1994. This consistent record reflects our ongoing commitment to enhancing stockholder value and returns.”
This dividend achiever managed to grow distributions at an annual rate of 23.90%/year over the past decade. Even more impressive is the fact that the company managed to grow earnings per share at an annual rate of 22.10%/year over the past decade.
Unfortunately, the stock market is enthusiastic about the company and its growth prospects as well. As a result, it is overvalued at 21.20 times earnings and spots a dividend yield of 1.20%. Ross Stores could be worth a second look on dips below $71/share.
QUALCOMM Incorporated (QCOM) designs, develops, manufactures, and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). Qualcomm Incorporated $QCOM hiked quarterly dividends by 9% to $0.62/share. This dividend achiever has managed to reward shareholders with a dividend raise for 15 years in a row. Over the past decade, Qualcomm has managed to boost annual dividends at a rate of 15.30%/year over the past decade. The company has managed to grow earnings per share from $1.90 in 2008 to an estimated $3.44 in 2018. The stock looks fairly valued at 18.20 times forward earnings and yields 3.90%. Unfortunately, the payout ratio at 72% is a little bit too high, relative to historical levels. In addition, I do not understand Qualcomm's business model well enough to have an opinion on the stock. In addition, the company seems to be in a game of chess where it is trying to acquire NXP Semiconductor (NXPI), while Broadcom (AVGO) is trying to acquire Qualcomm.
Relevant Articles:
- How to value dividend stocks
- 2018 Dividend Kings List
- Dividend Aristocrats for 2018 Revealed
- How to read my weekly dividend increase reports