As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention on the companies that have managed to grow dividends for at least a decade. This filter reduces the number of companies to review weekly.
The next step involves reviewing trends in fundamentals, in order to determine the likelihood of future dividend increases. Growth in earnings per share can provide the fuel behind future dividend increases and increases in intrinsic values.
However, it is also important to select companies when the valuation makes sense. A company that doesn’t grow can be a good investment, provided that the price is sufficiently low. A company that grows by leaps and bounds may turn out to be a poor investment, if the entry price is prohibitively high. To make things even more interesting, the valuation and availability of investments is also relative. It is dependent on the opportunities we have at the moment, and how they stack against each other.
The monitoring process I described is the way I use to keep tabs of many companies I own or am considering owning. The quick review is also the cornerstone of the way I review dividend companies for investment.
Over the past couple of weeks, there were four companies that raised dividends and also checked my boxes for further research. The companies include:
The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, Greater China, Latin America, India, the Middle East, and Africa. The company operates in five segments: Beauty; Grooming; health Care; fabric & Home Care; and Baby, Feminine & Family Care.
P&G raised its quarterly dividend by 4% to 74.59 cents/share. This marked the 63rd consecutive year of annual dividend increases for this dividend king. Over the past decade, it has managed to grow the distributions at an average rate of 6.20%/year.
Earnings per share have trended somewhat lower however, falling from $4.35/share in 2008 to $3.67/share in 2018 (although the latter can be adjusted to exclude certain one-time items to arrive to core EPS of $4.22/share.). Procter & Gamble is expected to generate $4.44/year in 2019.
The stock is overvalued at 24.60 times forward earnings and offers a forward yield of 2.80%. Given the lack of earnings growth over the past decade and the high valuation, I am not interesting in adding to this otherwise stable and reliable consumer giant. This has been the case for a while now, as my last analysis of PG alluded to.
Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company operates through four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.
The partnership raised its quarterly distributions to 43.75 cents/unit. The distribution is 2.30% higher than the distribution paid during the same time last year. The rate of distributions growth is slowing down, as the growth over the past decade was 5.30%/year on average. Enterprise Products Partners tens to raise distributions every quarter. The partnership has a 23 year track record of annual hikes in distributions to unitholders. The MLP yields 5.90%.
International Speedway Corporation (ISCA) promotes motorsports themed entertainment activities in the United States. The company raised its annual dividend by 4.30% to 49 cents/share. This marked the 14th year of annual dividend increases for this dividend achiever. During the past decade, it has managed to grow dividends at an annual rate of 14.60%.
Between 2008 and 2018, the company’s earnings went from $2.71 to $1.85/share. The latter was adjusted for one-time items. International Speedway Corporation is expected to earn $2/share in 2019.
The stock sells at 21.50 times forward earnings and yields 1.10%. Given the lack of earnings growth, and the high valuation, I am going to take a pass on the stock.
Bank OZK (OZK) provides retail and commercial banking services to businesses, individuals, and non-profit and governmental entities. The bank raised its quarterly dividend by 4.50% to 23 cents/share. This marked the 24th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth is at 20.30%/annum on average.
Between 2008 and 2018, this bank managed to grow earnings from $0.51/share to $3.24/share. Bank OZK is expected to earn $3.48/share in 2019. I see a lot of dividend investors reviewing Bank OZK over the past few months. The stock is cheap at 8.90 times forward earnings and yields 2.85%. I would have to add the stock to my list for further research.
Thank you for reading!
Relevant Articles:
- Procter & Gamble Raises Dividends for 61st Consecutive Year in a Row
- Why Warren Buffett likes Investing in Bank Stocks
- What to do about slowing earnings growth?
- How to value dividend stocks