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 three companies that raised dividends and also checked my boxes for further research. The companies include:
The Kroger Co. (KR) operates supermarkets, multi-department stores, marketplace stores, and price impact warehouse stores.
Kroger Co.'s Board of Directors approved a dividend increase from 14 cents to 16 cents per year. Kroger's quarterly dividend has grown at a double-digit compound annual growth rate since it was reinstated in 2006. The company continues to expect, subject to board approval, an increasing dividend over time.
"Kroger's 14 percent dividend increase underscores our Board of Director's confidence in the momentum we are building in the second year of Restock Kroger and our ability to deliver strong free cash flow," said Rodney McMullen, Kroger's chairman and CEO. "This marks our 13th consecutive year of dividend increases. We are committed to creating shareholder value and achieving our long-term vision to serve America through food inspiration and uplift."
Kroger's financial strategy is to use its free cash flow to drive growth while also maintaining its current investment grade debt rating and returning capital to shareholders. This dividend achiever actively balances the use of its cash flow to achieve these goals.
Between 2009 and 2019, earnings per share increased from $0.95 to $2.11/share. Kroger is expected to generate $2.17/share in 2020.
The stock is attractively valued at 10 times forward earnings and yields 2.90%.
Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and small businesses in the United States.
Board of Directors declared a regular quarterly cash dividend of $0.39 per share. This represents an increase of 3% over the previous regular quarterly dividend of $0.38 per share. It is also an 11.40% increase over the dividend paid during the same time last year. This is the banks 102nd consecutive quarterly dividend. This dividend achiever has consistently increased regular quarterly cash dividends over the last twenty-four years.
The most recent dividend increase has been faster than the ten year average of 5.50%/year. The bank also pays a special dividend equal to a quarterly dividend paid. It pays five quarterly dividends per year in essence.
The company has managed to grow earnings from $3.79/share in 2009 to $13.90/share in 2018.
The bank is attractively priced at 14.50 times earnings. However, its dividend yield is a little on the low side at 1%.
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 4.30% to 24 cents/share. The new payment is 20% higher than the distribution paid in the third quarter of 2018. Bank OZK is a dividend achiever with a 24 year track record of annual dividend increases. The bank has also managed to grow dividends every single quarter since 2011. 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 $3.78/share in 2019. I see a lot of dividend investors reviewing Bank OZK over the past few months. The stock is cheap at 8.60 times forward earnings and yields 3.20%. I would have to add the stock to my list for further research.
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