I like dividend growth investing as a strategy for my hard earned money. Using this strategy, I invest in world class businesses at attractive valuations, and then enjoy a rising stream of passive dividend income for years down the road.
It is amazing to receive growing dividend income, because of a smart decision made years ago. I see companies with long streaks of annual dividend increases as similar to people who prudently manage their personal finances, live within their means and manage to save and invest for retirement.
A long track record of annual dividend increases doesn't happen by chance. It is a result of a strong business model, where management is able to grow the business by reinvesting a portion of the earnings back to keep them competitive. There is extra cashflow that is not needed to grow the operations, which is the money that ends up sent in the form of dividends to shareholders. What makes dividend growth companies special is the fact that they not only generate more money than they know what to do with, but they are also growing that pile of excess cash annually. Instead of wasting it on corporate jets, or ego-boosting acquisitions, these companies end up showering their shareholders with more money each year.
A long streak of dividend increases is a sign of prudent allocation of resources by management, since they are able to grow the business and generate more money than they know what to do with. As a result, a lot of these companies proudly show their long streaks of annual dividend increases as a badge of honor.
Three such companies approved increases in their dividends over the past week. The companies include:
McCormick & Company Incorporated (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. The company operates through two segments, Consumer and Industrial. McCormick & Co raised its quarterly dividend by 9.60% to 57 cents/share. This marked the 33rd consecutive year that the company has increased its quarterly dividend. The ten year annual dividend growth has been 8.90%/year on average.
Lawrence E. Kurzius, Chairman, President & CEO, said, "Our strategic emphasis on growth, performance and people is the key to our excellent performance. We are committed to our long history of returning cash to shareholders and I'm proud to announce another dividend increase."
Between 2007 and 2017, McCormick grew earnings per share from $1.73 to $3.72. The company is expected to earn $4.99/share in 2018.
Right now I find this otherwise quality company to be overvalued at 30 times forward earnings. The stock yields 1.50%. I would definitely give this dividend champion a look on dips below $100/share. Check my analysis of McCormick & Co for more information about the company.
The Walt Disney Company (DIS), together with its subsidiaries, operates as an entertainment company worldwide. The company raised its semi-annual dividend by 4.80% to 88 cents/share.
“Given our record financial performance in fiscal 2018, we are pleased to increase our dividend to shareholders, while continuing to invest for future growth with our pending acquisition of 21st Century Fox and the ongoing development of our direct-to-consumer business,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “This payment brings our total dividends for the fiscal year to $1.72 a share.”
Disney has a 9 year streak of annual dividend increases. Over the past decade, it has managed to grow its dividend by 17.70%/year. The streak is based on record dates, because the company paid its 2013 dividend early, due to the uncertainty over the potential for dividend tax increases in 2013. In addition, Disney switched from annual to semi-annual dividend payments in 2015. As usual, it is far better to take a more manual approach to researching companies, rather than a mechanistic approach.
The company grew earnings from $2.25/share in 2007 to $5.69/share in 2017. Disney is expected to earn $7.11/share in 2019.
The stock yields 1.50% and is selling at an attractive 16.20 times forward earnings. Given the low yield, I am not very happy with the slower than average dividend increase. The pending acquisition of 21st Century Fox is likely to result in other priorities for management, such as debt repayment, acquisition integration, which may leave near-term dividend growth as a lower priority. I would not be surprised if they miss a few dividend increases over the next decade – but this is to be expected given Disney’s dividend history. I refer to companies that grow dividends for a few years, then keep them unchanged before resuming their dividend increases as dividend angels.
Check my analysis of Walt Disney Company for more information about the stock.
RGC Resources, Inc. (RGCO), through its subsidiaries, operates as an energy services company. The company sells and distributes natural gas to residential, commercial, and industrial customers. The company raised its quarterly dividend by 6.50% to 16.50 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow dividends at an annual rate of 3.60%/year.
Between 2008 and 2019, earnings went from 64 cents/share to 95 cents/share. The company is expected to earn $1/share in 2019.
Right now, I find the stock to be overvalued at 27.60 times forward earnings. The stock yields 2.40%, but has a 66% dividend payout ratio. This slow and steady utility may be worth a second look for research on dips below $20/share.
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- Screening The Dividend Champions List For Bargains
- Five Consumer Staples to Consider On Dips
- Why Holding 100% of Equity Investments in Taxable Accounts is a Mistake
- December 2018 Dividend Champions List