As part of my monitoring process, I review the list of dividend increases every week. I use this process to evaluate existing holdings and also to identify hidden dividend gems. I find it helpful to observe the pulse of dividend increases in my overall monitoring process.
I looked at the list of dividend increases, and then narrowed it down to include those companies that have raised distributions for at least a decade.
The next step includes a focus on each company’s dividend increase, and comparison to its ten year average. After that, I am reviewing the trends in fundamentals, in order to determine if dividend growth is sustainable, and derived from earnings growth. In general, I want to focus my attention on companies which grow earnings and dividends in tandem; I want to avoid companies with stagnant earnings that grow dividends through the expansion in the dividend payout ratio. I have found that the companies with the safest dividends tend to have an adequate dividend payout ratio and growth in earnings per share to deliver future dividend growth, and provide an added margin of safety against short-term turbulence.
Last but not least, I also evaluate the valuation of each company. In general, I want to focus on companies with solid fundamentals, which are also available at attractive valuations.
V.F. Corporation (VFC) engages in the design, production, procurement, marketing, and distribution of branded lifestyle apparel, footwear, and related products for men, women, and children in the Americas, Europe, and the Asia Pacific. It operates through four segments: Outdoor & Action Sports, Jeanswear, Imagewear, and Other. The company raised its quarterly dividend by 10.90% to 51 cents/share. This marked the 46th consecutive annual dividend increase for this dividend champion. Over the past decade, it has managed to increase dividends at an annual rate of 11.90%/year. The company grew earnings from $1.30/share in 2007 to $2.67/share in 2017. The 2017 figures are adjusted for the one-time impact of the new tax law introduced in 2017. V.F. Corporation is expected to earn $3.71/share in 2018.The stock is overvalued at 21.90 times forward earnings and yields 3.20%. V.F. Corp may be worth a second look on dips below $74/share.
West Pharmaceutical Services, Inc. (WST) manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Germany, France, Other European countries, and internationally. The company operates through two segments, Proprietary Products and Contract-Manufactured Products. The company raised its quarterly dividend by 7.10% to 15 cents/share. West Pharmaceutical Services is a dividend champion with 26 years of annual dividend increases under its belt. Over the past decade, it has managed to increase dividends at an annual rate of 7.20%/year. The company grew earnings from $1.02/share in 2007 to $1.99/share in 2017. West Pharmaceutical Services is expected to earn $2.82/share in 2018. The stock is overvalued at 35.90 times forward earnings and yields 0.50%.
Middlesex Water Company (MSEX), together with its subsidiaries, owns and operates regulated water utility and wastewater systems. It operates in two segments, Regulated and Non-Regulated. The company raised its quarterly dividend by 7.30% to 24 cents/share. This marked the 46th consecutive annual dividend increase for this dividend champion. Over the past decade, it has managed to increase dividends at an annual rate of 2.20%/year. The company grew earnings from $0.87/share in 2007 to $1.38/share in 2017. Middlesex Water Company is expected to earn $1.84/share in 2018. The stock is overvalued at 24.80 times forward earnings and yields 2.10%.
ONEOK, Inc. (OKE), through its general partner interests in ONEOK Partners, L.P., engages in the gathering, processing, storage, and transportation of natural gas in the United States. The company operates through Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines segments. ONEOK raised its quarterly dividend to 85.50 cents/share. This is 14.80% higher than the distribution paid during the same time last year. This dividend achiever has rewarded shareholders with a raise for 16 years in a row. Over the past decade, ONEOK has managed to increase dividends at an annual rate of 16.10%/year. The stock is selling for 23.70 times forward earnings and yields 5.30%.
Prosperity Bancshares, Inc. (PB) operates as bank holding company for the Prosperity Bank that provides retail and commercial banking services to small and medium-sized businesses, and consumers. The bank raised its quarterly dividend by 13.90% to 41 cents/share. This marked the 20th year of consecutive dividend increases for this dividend achiever. Over the past decade, it has managed to increase dividends at an annual rate of 11.70%/year. The company grew earnings from $1.94/share in 2007 to $3.92/share in 2017. Prosperity Bancshares is expected to earn $4.60/share in 2018. The stock is attractively valued at 4.10 times forward earnings and yields 2.60%.
Westwood Holdings Group, Inc.(WHG), through its subsidiaries, manages investment assets and provides services for its clients. The company operates in two segments, Advisory and Trust. The company raised its quarterly dividend by 4.40% to 71 cents/share. This dividend achiever has rewarded shareholders with a raise for 17 years in a row. It has managed to grow dividends at an annual rate of 12%/year. Earnings per share rose from $1.63 in 2008 to $2.38 in 2017. There has been a decline in earnings per share from $3.45 in 2014. The forward dividend is $2.84/year doesn’t seem covered well from earnings over the past couple of years. I need to research this company further, to determine if it is cheap at 17.80 times earnings or it is a value trap. The stock yields 6.60%.
Cass Information Systems, Inc. (CASS) provides payment and information processing services to manufacturing, distribution, and retail enterprises in the United States. It operates through two segments, Information Services and Banking Services. The company raised its quarterly dividend by 20% to 26 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to increase dividends at an annual rate of 9.90%/year. The company grew earnings from $1.43/share in 2007 to $2.01/share in 2017. The stock is overvalued at 32 times earnings and yields 1.70%.
Magellan Midstream Partners, L.P. (MMP) engages in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. The company operates through Refined Products, Crude Oil, and Marine Storage segments. The MLP raised quarterly distributions to 97.75 cents/unit. This is a 6.25% raise over the distribution paid during the same time last year. It has rewarded limited partners with a raise for 18 years in a row. Over the past decade, it has managed to boost distributions at an annual rate of 10.90%/year over the past decade. The MLP yields 6.30%.
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