As part of my monitoring process I review the list of dividend increases every week. I filter out the companies that have not reached dividend contender or dividend achiever status yet. I do this in order to focus on those companies that have a long track record which spans a period that covers a recession and an expansion.
The next step in the process involves reviewing the rate of most recent dividend increase relative to the ten year average. I have found that the rate of the latest dividend increase usually shows the confidence in near term business prospects for the company.
I also like to review trends in historical dividend growth relative to the trends in earnings per share during the same time periods. In general, we want roughly similar rates of earnings and dividend growth over time. However, there are individual exceptions for companies in the initial phases of dividend growth which tend to start off from a lower dividend payout ratio. In general, it is helpful to see an upward trend in earnings per share over time. Future dividend payments can be in danger when we have flat or declining earnings per share.
Last but not least, I also like to see quality companies available at attractive valuations. I try to avoid overpaying for future income streams. In order to do that, I have some pre-set maximum P/E ratios I will pay for a stock.
These are the general guidelines I utilize when reviewing any group of dividend growth stocks, be it the list of weekly dividend increases or the list of dividend champions. All of those guidelines help me get an adequate margin of safety when selecting companies for my dividend growth portfolio.
Over the past week, there were five dividend contender companies that raised dividends by more than a token amount. The companies include:
Chesapeake Utilities Corporation (CPK), a diversified energy company, engages in regulated and unregulated energy businesses. The company operates in two segments, Regulated Energy and Unregulated Energy. The company raised its quarterly distribution by 13.80% to 37 cents/share.
This marked the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost its dividends at an annual rate of 4.90%/year.
Between 2008 and 2017 the company managed to grow its earnings per share from $1.32 to $3.55.
The average analyst estimate is for earnings to reach $3.44/share in 2018 and $3.75/share in 2019.
The stock sells for 22.20 times forward earnings and yields 1.90%. I find it overvalued at the moment. It may be worth researching if it sells below $68/share.
Cardinal Health, Inc. (CAH) operates as an integrated healthcare services and products company worldwide. The company raised its quarterly dividend by 3% to 47.63 cents/share. Over the past decade, the company has managed to grow its dividends at a rate of 19.70%/year. This marked the 34th consecutive annual dividend increase for this dividend aristocrat.
Between 2008 and 2017 the company managed to grow its earnings per share from $2.33 to $4.03.
The average analyst estimate is for earnings to reach $5.03/share in 2018 and $5.30/share in 2019.
The stock sells for 11 times forward earnings and yields 3.40%. I find the stock attractively valued today. While the environment is challenging, and the rate of dividend growth has slowed down dramatically, the valuation is low to compensate for many of the known risks today.
FactSet Research Systems Inc. (FDS) provides integrated financial information and analytical applications to the investment community in the United States, Europe, and the Asia Pacific.
The company raised its quarterly dividend by 14.30% to 64 cents/share. This marked the 20th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow its dividends at a rate of 17.90%/year.
Between 2008 and 2017 the company managed to grow its earnings per share from $2.50 to $6.51.
The average analyst estimate is for earnings to reach $8.48/share in 2018 and $9.50/share in 2019.
The stock sells for 23.30 times forward earnings and yields 1.30%. I like the company, and the growth trajectory. It may be worth a second look on dips below 20 times earnings. Depending on how conservative I want to be, this means 20 times prior year earnings ( below $130/share) or 20 times forward earnings ( below 170/share).
MSA Safety Incorporated (MSA) develops, manufactures, and supplies safety products that protect people and facility infrastructures in the oil, gas, petrochemical, fire service, construction, utilities, and mining industries worldwide. It operates through Americas and International segments.
The company raised its quarterly dividend by 8.60% to 38 cents/share. This marked the 47th year of consecutive dividend increases for this dividend champion. The company has managed to boost dividends by 5.10%/year over the past decade. The company grew earnings per share from $1.96 in 2008 to an estimated $4.21/share in 2018 and $4.66/share in 2019
The stock is overvalued at 21.50 times forward earnings and yields 1.70%. It may be worth adding to my list for further research if it dips below $84/share.
Weyco Group, Inc. (WEYS), together with its subsidiaries, designs and distributes footwear. The company operates through two segments, North American Wholesale and North American Retail.
The company raised its quarterly dividend by 4.50% to 23 cents/share. This marked the 37th consecutive annual dividend increase for this dividend champion.
Weyco has managed to grow its dividends at an annual rate of 8.10%/year over the past decade. The company barely grew earnings per share from $1.45 in 2008 to $1.60 in 2017.
The stock sells for 20 times earnings and yields 2.50%. Given the lack of earnings growth over the past decade, and the high valuation, I think the stock is a pass for me.
Relevant Articles:
- Dividend Aristocrats for 2018 Revealed
- Dividend Champions, Contenders & Challengers: The most complete list of US dividend growth stocks available
- Dividend Achievers Offer Income Growth and Capital Appreciation Potential
- How I Manage to Monitor So Many Companies