Last week, there were four dividend increases from companies which have at least a decade of annual dividend growth under their belts. The most notable company that hiked dividends last week was Altria Group, which marked its 50th year of consecutive annual dividend increases. As a result, Altria joined the elite group of dividend kings.
However, there were three other companies with a decade of annual dividend increases or longer. These companies include:
Atrion Corporation (ATRI) develops, manufactures, and sells products for fluid delivery, cardiovascular, and ophthalmology applications worldwide.
Last week, the company hiked its quarterly dividend by 14.80% to $1.55/share. This marked the 17th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 16.80%.
Atrion has managed to boost earnings from $7.82/share in 2008 to $18.44/share in 2018.
Unfortunately, the stock is overvalued today at a little over 41 times earnings. The yield is also kind of low at 0.80%. This may be a good company to watch during the next big selloff. There are no Wall Street analysts covering it too, so there is a potential opportunity for research.
Community Bank System, Inc. (CBU) operates as the bank holding company for Community Bank, N.A. that provides various banking and other financial services to retail, commercial, and municipal customers. It operates through three segments: Banking, Employee Benefit Services, and All Other.
The company hiked its quarterly dividend by 8% to 41 cents/share. This marked the 28th consecutive annual dividend increase for this dividend champion. During the past decade, the company has managed to boost distributions at an annualized rate of 5.10%. It is impressive to find a financial company that kept raising the dividends during the financial crisis.
Between 2008 and 2018, the company has managed to grow earnings from $1.48/share to $3.24/share. The company is expected to generate $3.24/share in 2019.
The bank is very close to fully valued at 18.90 times forward earnings, which is a high multiple for a financial institution. The stock yields 2.70% today, which is also on the lower side for as financial institutions. The company may be worth a second look if it comes down in price from here.
L3Harris Technologies, Inc. (LHX) provides technology-based solutions that solve government and commercial customers' mission-critical challenges in the United States and internationally. The company operates in three segments: Communication Systems, Electronic Systems, and Space and Intelligence Systems.
The company hiked its quarterly dividend by 9.50% to 75 cents/share. This marked the 18th consecutive annual dividend increase for this dividend achiever. The company has managed to boost distributions at an annualized rate of 13.60% over the past decade.
Between 2008 and 2019, the company managed to boost earnings from $3.25/share to $7.86/share. The company is expected to generate $9.59/share in 2019.
The stock is overvalued at 22.20 times forward earnings and offers a dividend yield of 1.40%. The stock may be worth a second look on dips below 20 times earnings.
Relevant Articles:
- 2019 Dividend Champions List
- Altria Group Joins The Dividend Kings List
- Dividend Growth Stocks I am Buying In August 2019
- Dividend Achievers versus Dividend Contenders & Champions
Thursday, August 29, 2019
Tuesday, August 27, 2019
Altria Group Joins The Dividend Kings List
Altria Group, Inc. (MO), through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands. The company also produces and sells varietal and blended table wines, and sparkling wines.
Altria increased its quarterly dividend by 5% to 84 cents/share just last week. This marked the 50th year of consecutive annual dividend increases for this newly minted dividend king. I will update the dividend kings list at my next review.
Between 2008 and 2018, Altria managed to boost its earnings per share from $1.45 to $3.68. The company expects to generate between $4.15 and $4.27/share in adjusted earnings per share in 2019.
On a side note, the earnings per share for 2016 and 2017 have been adjusted to exclude one-time accounting items.
There are a lot of reasons to like Altria. The products are branded and addictive and the market for tobacco products so far is in the hands of a few major players with Altria holding a dominant position. There is some threat of future legislation banning the sale of tobacco products or making it uneconomical. However, local governments take in a ton of money by heavily taxing tobacco products. It is hard to find another scapegoat that can be taxed so heavily.
The other factor to consider is that while the number of smokers is expected to be decreasing over time, so far the increase in prices has more than offset the drop in consumers. At some point, this could reverse, but this has been the fear for several decades now. So far, price increases have more than offset volume declines, which results in growing net income year over time. Future growth in earnings will also be driven by productivity improvements, as well as strategic acquisitions and new product developments. Share buybacks are another tool that could increase earnings per share over time. As an owner of a 10% stake in Anheuser - Busch Inbev (BUD), Altria's fortunes are also tied to the performance of this entity.
New regulations could potentially be bad for e-cigarettes, which compete with Altria’s products. However, there may be regulation against certain types of menthol cigarettes, which is one reason why tobacco stocks seems to have sold off as of recently. I am not sure if I would embrace marijuana’s legalization, or Altria’s deal with Aphria to acquire a stake in the cannabis company. The cannabis market is still young, and may disrupt the market for tobacco products. The winners from legalization may not be known for years down the road.
I am also not a big fan of the company’s investment in JUUL. You can check the reasons here. While this deal shifts the risk profile, and increases debt, it could theoretically also increase earnings per share too. It is very likely that the future dividend growth may be less stellar than in the past.
I was thinking that this would be my last investment in Altria for this year. However, the stock is a very good value today. That being said, I am taking an increasingly concentrated bet, because I have the highest portion of my dividend income coming from Altria. If I am wrong, and the tobacco business is being disrupted at a faster pace than anticipated, my portfolio could take a hit in dividend income. If the stock goes further down, I would be unable to add further to the position from a risk management perspective.
Growth in earnings per share is impressive, given the fact that the company has paid out 80% of earnings to shareholders annually. In addition, the company also managed to repurchase 10% of shares outstanding during that same time period.
Over the past decade, Altria has managed to more than double its dividend. The company paid out $1.22/share in 2008, and it paid out $3/share in 2018. Altria raised its dividend just last week by 5% to 84 cents/share. Altria’s intention is to return a large amount of cash to shareholders in the form of dividends.
The company’s dividend payout ratio has declined from 85% in 2008 to a little over 82% in 2017. Management has stated its target for Altria’s dividend payout ratio of approximately 80% of its adjusted diluted earnings per share. That hasn’t stopped it from more than doubling earnings per share over the past decade.
Currently, the stock is attractively valued at 11.10 times forward earnings and yields 7.20%.
Relevant Articles:
- Altria Rewards Shareholders With a Smoking Hot Dividend Increase
- Analysis of Altria's Recent Deal Activity
- Dividend Kings List For 2019
- British American Tobacco (BTI) Dividend Stock Analysis
Altria increased its quarterly dividend by 5% to 84 cents/share just last week. This marked the 50th year of consecutive annual dividend increases for this newly minted dividend king. I will update the dividend kings list at my next review.
Between 2008 and 2018, Altria managed to boost its earnings per share from $1.45 to $3.68. The company expects to generate between $4.15 and $4.27/share in adjusted earnings per share in 2019.
On a side note, the earnings per share for 2016 and 2017 have been adjusted to exclude one-time accounting items.
There are a lot of reasons to like Altria. The products are branded and addictive and the market for tobacco products so far is in the hands of a few major players with Altria holding a dominant position. There is some threat of future legislation banning the sale of tobacco products or making it uneconomical. However, local governments take in a ton of money by heavily taxing tobacco products. It is hard to find another scapegoat that can be taxed so heavily.
The other factor to consider is that while the number of smokers is expected to be decreasing over time, so far the increase in prices has more than offset the drop in consumers. At some point, this could reverse, but this has been the fear for several decades now. So far, price increases have more than offset volume declines, which results in growing net income year over time. Future growth in earnings will also be driven by productivity improvements, as well as strategic acquisitions and new product developments. Share buybacks are another tool that could increase earnings per share over time. As an owner of a 10% stake in Anheuser - Busch Inbev (BUD), Altria's fortunes are also tied to the performance of this entity.
New regulations could potentially be bad for e-cigarettes, which compete with Altria’s products. However, there may be regulation against certain types of menthol cigarettes, which is one reason why tobacco stocks seems to have sold off as of recently. I am not sure if I would embrace marijuana’s legalization, or Altria’s deal with Aphria to acquire a stake in the cannabis company. The cannabis market is still young, and may disrupt the market for tobacco products. The winners from legalization may not be known for years down the road.
I am also not a big fan of the company’s investment in JUUL. You can check the reasons here. While this deal shifts the risk profile, and increases debt, it could theoretically also increase earnings per share too. It is very likely that the future dividend growth may be less stellar than in the past.
I was thinking that this would be my last investment in Altria for this year. However, the stock is a very good value today. That being said, I am taking an increasingly concentrated bet, because I have the highest portion of my dividend income coming from Altria. If I am wrong, and the tobacco business is being disrupted at a faster pace than anticipated, my portfolio could take a hit in dividend income. If the stock goes further down, I would be unable to add further to the position from a risk management perspective.
Growth in earnings per share is impressive, given the fact that the company has paid out 80% of earnings to shareholders annually. In addition, the company also managed to repurchase 10% of shares outstanding during that same time period.
Over the past decade, Altria has managed to more than double its dividend. The company paid out $1.22/share in 2008, and it paid out $3/share in 2018. Altria raised its dividend just last week by 5% to 84 cents/share. Altria’s intention is to return a large amount of cash to shareholders in the form of dividends.
The company’s dividend payout ratio has declined from 85% in 2008 to a little over 82% in 2017. Management has stated its target for Altria’s dividend payout ratio of approximately 80% of its adjusted diluted earnings per share. That hasn’t stopped it from more than doubling earnings per share over the past decade.
Currently, the stock is attractively valued at 11.10 times forward earnings and yields 7.20%.
Relevant Articles:
- Altria Rewards Shareholders With a Smoking Hot Dividend Increase
- Analysis of Altria's Recent Deal Activity
- Dividend Kings List For 2019
- British American Tobacco (BTI) Dividend Stock Analysis
Monday, August 26, 2019
Dividend Growth Stocks I am Buying In August 2019
I started my Dividend Growth Investor Newsletter in an effort to educate investors on how to build and manage a dividend growth portfolio, and reach goals and investment objectives. The companies I am investing in are part of a real money experiment where I show readers of my premium newsletter how I am building a portfolio from scratch. I just bought shares in twelve dividend growth stocks this morning for this premiums portfolio.
Readers of my premium newsletter received a detailed analysis of these selections on Sunday, August 25th. They are receiving a trade confirmation by close of business today.
I go beyond just the companies I invest in every month, and analyzing these companies in detail of course. I try to instill discipline around creating and following a process for reaching a set of goals within a time-frame. The goal of the portfolio is to generate $1,000 in monthly dividend income, by investing roughly $1,000 per month in ten attractively valued dividend growth stocks. I made a slight modification this month to buy a little more than 10 companies, in order to round up portfolio weights.
I also try to instill discipline around diversification, regular investing through dollar cost averaging and sticking to a process through thick or thin. Everything I share is based on lessons that I have accumulated over the past decade.
In this real money experiment, I will walk you through the complete process of building and managing a portfolio. In real time. I am allocating money first in the best ideas I find today. This is the exercise that depends on my experience selecting winning dividend investments for over a decade. Investing is part art, part science.
In general, I look for the following characteristics in the companies I am considering for analysis:
This process relies on manually screening the list of dividend growth stocks I find interesting. Plus, it also involves some thinking in terms of trade-offs and probabilities. What this means to me is that based on my reviews that I have made monthly, I have noticed that certain companies can be found quite often at attractive valuations. Therefore, with this screening process, I will try to focus my attention on those harder to get companies too. In terms of trade-offs, I also think in terms of the trade-off between dividend yield and dividend growth. If a company yields less, I would be expecting faster dividend growth. On the other hand, a company with a high yield will likely be unable to grow distributions at a high rate every year. My goal is to try and select companies that I will be happy owning for years.
I am not going to churn the portfolio. I am a passive buy and hold investor who has learned that selling is often a mistake. If the companies I own cut dividends however, I will likely sell them and reinvest the proceeds elsewhere. If we get acquisitions in cash, I will likely reinvest it alongside the list of 10 top dividend stocks. If we get acquisitions in stock, I will evaluate the situation and decide what to do. The next step involved reviewing the list to come up with companies to invest in.
If you are interested in signing up for a seven day risk free trial at the low price of $65/year, you can sign up using this link:
If you are not satisfied within 7 days, you can cancel just by letting me know. If you stay, you will be able to observe me make investments in real time, over the course of the next decade or so, until I reach those investing goals. I believe that the newsletter is a bargain, at a low cost of less than 20 cents/days.
Once you subscribe, I will add you to my exclusive email list, and you will be able to receive premium information about the dividend growth investor portfolio.
This information includes a monthly list of dividend growth stocks I am buying, as well as timely notification of any ad-hoc purchases I will be making. It also includes a review of my dividend portfolio holdings, and evaluation of how I am doing relative to the goals set out at the inception of the portfolio. You will also obtain educational comments on an as-needed basis.
The price will increase over time, so you have a limited chance to grab this subscription today. If you subscribe today however, your price will never increase. I guarantee it.
Readers of my premium newsletter received a detailed analysis of these selections on Sunday, August 25th. They are receiving a trade confirmation by close of business today.
I go beyond just the companies I invest in every month, and analyzing these companies in detail of course. I try to instill discipline around creating and following a process for reaching a set of goals within a time-frame. The goal of the portfolio is to generate $1,000 in monthly dividend income, by investing roughly $1,000 per month in ten attractively valued dividend growth stocks. I made a slight modification this month to buy a little more than 10 companies, in order to round up portfolio weights.
I also try to instill discipline around diversification, regular investing through dollar cost averaging and sticking to a process through thick or thin. Everything I share is based on lessons that I have accumulated over the past decade.
In this real money experiment, I will walk you through the complete process of building and managing a portfolio. In real time. I am allocating money first in the best ideas I find today. This is the exercise that depends on my experience selecting winning dividend investments for over a decade. Investing is part art, part science.
In general, I look for the following characteristics in the companies I am considering for analysis:
- A ten year streak of annual dividend increases
- A sustainable dividend payout ratio
- An annual dividend growth rate exceeding inflation over the past decade
- A pattern of earnings per share growth
- A P/E ratio below 20
This process relies on manually screening the list of dividend growth stocks I find interesting. Plus, it also involves some thinking in terms of trade-offs and probabilities. What this means to me is that based on my reviews that I have made monthly, I have noticed that certain companies can be found quite often at attractive valuations. Therefore, with this screening process, I will try to focus my attention on those harder to get companies too. In terms of trade-offs, I also think in terms of the trade-off between dividend yield and dividend growth. If a company yields less, I would be expecting faster dividend growth. On the other hand, a company with a high yield will likely be unable to grow distributions at a high rate every year. My goal is to try and select companies that I will be happy owning for years.
I am not going to churn the portfolio. I am a passive buy and hold investor who has learned that selling is often a mistake. If the companies I own cut dividends however, I will likely sell them and reinvest the proceeds elsewhere. If we get acquisitions in cash, I will likely reinvest it alongside the list of 10 top dividend stocks. If we get acquisitions in stock, I will evaluate the situation and decide what to do. The next step involved reviewing the list to come up with companies to invest in.
If you are interested in signing up for a seven day risk free trial at the low price of $65/year, you can sign up using this link:
If you are not satisfied within 7 days, you can cancel just by letting me know. If you stay, you will be able to observe me make investments in real time, over the course of the next decade or so, until I reach those investing goals. I believe that the newsletter is a bargain, at a low cost of less than 20 cents/days.
Once you subscribe, I will add you to my exclusive email list, and you will be able to receive premium information about the dividend growth investor portfolio.
This information includes a monthly list of dividend growth stocks I am buying, as well as timely notification of any ad-hoc purchases I will be making. It also includes a review of my dividend portfolio holdings, and evaluation of how I am doing relative to the goals set out at the inception of the portfolio. You will also obtain educational comments on an as-needed basis.
The price will increase over time, so you have a limited chance to grab this subscription today. If you subscribe today however, your price will never increase. I guarantee it.
Thursday, August 22, 2019
This Is Why Warren Buffett Prefers Dividends Over Capital Gains
Warren Buffett is the best investor in the world. He managed to snowball his networth from roughly $10,000 in the early 1950s to over 80 billion today. He has managed to compound net worth at high rates of return by investing in companies and industries that generate an ever growing stream of cashflows, and have low investment requirements.
Warren Buffett loves investing in industries and companies that distribute a lot of excess cashflows. Examples include:
Coca-Cola (KO), which is a dividend king with a 57 year history of annual dividend increases.
Wells Fargo (WFC), which is recovering nicely from the financial crisis, closing in on 9 consecutive years of annual dividend increases.
Apple (AAPL), which is one of the most valuable companies in the world, which has managed to reward shareholders with a dividend increase annually since 2012.
Warren Buffett is a closet dividend growth investor. While he doesn’t like paying dividends to Berkshire shareholders, he does like receiving them and being in control of how that cashflow is being reinvested. This is similar to the process ordinary dividend investors use in their portfolio activity.
But why does he prefer dividends over capital gains?
The reason for that is taxes.
For ordinary investors, long-term capital gains and qualified dividends are taxed at the same rate. If you are in the highest tax brackets in the US, you will pay a 20% marginal tax rate on qualified dividends and long-term capital gains.
If you are in the lowest tax brackets in the US, both qualified dividend income and long-term capital gains are taxed at zero tax rates. Being part of the capitalist class comes with hefty tax breaks, and lower tax rates, than being part of the working class.
For Corporations however, there are special rules regarding the taxation of dividends and capital gains.
Capital gains are taxed at ordinary income tax rates. In other words, when Buffett sells stock, he realizes a gain, which is taxed as ordinary income. It doesn’t matter if the gain is long-term or short-term in nature – it is not taxed at preferential rates. This is why Buffett doesn’t like selling shares, because there will be a large tax bite associated with this activity. There is an opportunity cost to selling a company, and replacing it with another that may not do as well as the original one too. As a result, it makes sense that he focuses on businesses that can grow earnings, values and dividends over the long run which he can hold on to for decades.
And here is the best part – corporations have a special tax break on dividend income called the dividend received deduction.
The dividend received deduction reduced the amount of dividend income, which is taxable by corporations that receive dividends from their stock investments.
A corporation that owns less than 20% in another company gets to be taxed only on 30% of the dividends received. In other words if Berkshire Hathaway owns 400 million shares of Coca-Cola stock, and that is less than 20% of the shares of Coca-Cola outstanding, it means that only 30% of that dividend income will be taxable. Berskhire Hathaway is generating $160 million in quarterly dividends from Coca-Cola every single quarter. This translates into $640 million per year, against a cost basis of $1.3 billion, for a 50% yield on cost. This means that only 30% of the $640 million will be taxable to Berkshire Hathaway. If we assume a tax rate of 35%, it means a tax of $67.2 million/year. This is roughly 10.50% tax on dividend income. If Berkshire were to sell Coca-Cola stock with a gain of $640 million today, they would pay tax of $224 million, which is four times as much as the tax on dividends.
A corporation that owns more than 20% in the stock of another, but less than 80%, is taxed only on 20% of the dividend income it receives from that investment. Assuming a 35% tax on income, it means that dividend income is taxed at an effective rate of 7%.
So when Berkshire Hathaway Energy, a subsidiary in which Berkshire Hathaway controls 90.90% of shares outstanding, distributes dividends to the parent company, they will be taxed at 7% at most.
A corporation that owns 100% of the stock in another company gets to avoid taxation on dividend income sourced from that company only. In other words, Berkshire Hathaway has generated over $2 billion in profits on its 1972 investment in See’s Candies. Since Berkshire Hathaway had a 100% interest in See’s Candies, it was not taxed on any dividends paid by See’s to Berkshire. Not only did Berkshire put only $25 million for the company in 1972, but it also paid no taxes on dividends in the process. When a corporation owns 100% of the stock in another corporation, its dividend income is taxed at an effective rate of 0%. This makes the process of moving money from one subsidiary into another, a painless and tax-free endeavor. Given the fact that Berkshire Hathaway is now more focused on buying companies outright, rather than buying stock on the market, this tax break is wonderful for the Omaha based conglomerate. If Berkshire were to sell any of the companies it fully owns today however, the gain on sale would be fully taxed at rates as high as 35% today.
Today we learned that Warren Buffett's Berkshire Hathaway prefers dividend income received from its subsidiaries over capital gains. That's because under the US tax code, dividend income is taxed more favorably than capital gains for corporations.
In my book however, this is another reason why Warren Buffett is a closet dividend growth investor.
Relevant Articles:
- Warren Buffett – A Closet Dividend Investor
- Warren Buffett on Dividends: Ideas from his 2013 Letters to Shareholders
- Warren Buffett’s Dividend Stock Strategy
- Dividends Provide a Tax-Efficient Form of Income
Warren Buffett loves investing in industries and companies that distribute a lot of excess cashflows. Examples include:
Coca-Cola (KO), which is a dividend king with a 57 year history of annual dividend increases.
Wells Fargo (WFC), which is recovering nicely from the financial crisis, closing in on 9 consecutive years of annual dividend increases.
Apple (AAPL), which is one of the most valuable companies in the world, which has managed to reward shareholders with a dividend increase annually since 2012.
Warren Buffett is a closet dividend growth investor. While he doesn’t like paying dividends to Berkshire shareholders, he does like receiving them and being in control of how that cashflow is being reinvested. This is similar to the process ordinary dividend investors use in their portfolio activity.
But why does he prefer dividends over capital gains?
The reason for that is taxes.
For ordinary investors, long-term capital gains and qualified dividends are taxed at the same rate. If you are in the highest tax brackets in the US, you will pay a 20% marginal tax rate on qualified dividends and long-term capital gains.
If you are in the lowest tax brackets in the US, both qualified dividend income and long-term capital gains are taxed at zero tax rates. Being part of the capitalist class comes with hefty tax breaks, and lower tax rates, than being part of the working class.
For Corporations however, there are special rules regarding the taxation of dividends and capital gains.
Capital gains are taxed at ordinary income tax rates. In other words, when Buffett sells stock, he realizes a gain, which is taxed as ordinary income. It doesn’t matter if the gain is long-term or short-term in nature – it is not taxed at preferential rates. This is why Buffett doesn’t like selling shares, because there will be a large tax bite associated with this activity. There is an opportunity cost to selling a company, and replacing it with another that may not do as well as the original one too. As a result, it makes sense that he focuses on businesses that can grow earnings, values and dividends over the long run which he can hold on to for decades.
And here is the best part – corporations have a special tax break on dividend income called the dividend received deduction.
The dividend received deduction reduced the amount of dividend income, which is taxable by corporations that receive dividends from their stock investments.
A corporation that owns less than 20% in another company gets to be taxed only on 30% of the dividends received. In other words if Berkshire Hathaway owns 400 million shares of Coca-Cola stock, and that is less than 20% of the shares of Coca-Cola outstanding, it means that only 30% of that dividend income will be taxable. Berskhire Hathaway is generating $160 million in quarterly dividends from Coca-Cola every single quarter. This translates into $640 million per year, against a cost basis of $1.3 billion, for a 50% yield on cost. This means that only 30% of the $640 million will be taxable to Berkshire Hathaway. If we assume a tax rate of 35%, it means a tax of $67.2 million/year. This is roughly 10.50% tax on dividend income. If Berkshire were to sell Coca-Cola stock with a gain of $640 million today, they would pay tax of $224 million, which is four times as much as the tax on dividends.
A corporation that owns more than 20% in the stock of another, but less than 80%, is taxed only on 20% of the dividend income it receives from that investment. Assuming a 35% tax on income, it means that dividend income is taxed at an effective rate of 7%.
So when Berkshire Hathaway Energy, a subsidiary in which Berkshire Hathaway controls 90.90% of shares outstanding, distributes dividends to the parent company, they will be taxed at 7% at most.
A corporation that owns 100% of the stock in another company gets to avoid taxation on dividend income sourced from that company only. In other words, Berkshire Hathaway has generated over $2 billion in profits on its 1972 investment in See’s Candies. Since Berkshire Hathaway had a 100% interest in See’s Candies, it was not taxed on any dividends paid by See’s to Berkshire. Not only did Berkshire put only $25 million for the company in 1972, but it also paid no taxes on dividends in the process. When a corporation owns 100% of the stock in another corporation, its dividend income is taxed at an effective rate of 0%. This makes the process of moving money from one subsidiary into another, a painless and tax-free endeavor. Given the fact that Berkshire Hathaway is now more focused on buying companies outright, rather than buying stock on the market, this tax break is wonderful for the Omaha based conglomerate. If Berkshire were to sell any of the companies it fully owns today however, the gain on sale would be fully taxed at rates as high as 35% today.
Today we learned that Warren Buffett's Berkshire Hathaway prefers dividend income received from its subsidiaries over capital gains. That's because under the US tax code, dividend income is taxed more favorably than capital gains for corporations.
In my book however, this is another reason why Warren Buffett is a closet dividend growth investor.
Relevant Articles:
- Warren Buffett – A Closet Dividend Investor
- Warren Buffett on Dividends: Ideas from his 2013 Letters to Shareholders
- Warren Buffett’s Dividend Stock Strategy
- Dividends Provide a Tax-Efficient Form of Income
Monday, August 19, 2019
Three Dividend Stocks Raising the Bar
I reviewed three companies which raised dividends last week. Each of these companies has managed to boost dividends annually for at least ten years in a row. I focused on trends in earnings per share, in order to determine if there is fuel for future dividend increases. I also focused on past growth in dividends, in comparison to the latest dividend increase. Last but not least, I looked at valuation, and decided if a company is worth pursuing further, and at what price. These reviews are part of my monitoring process.
The three companies for my review include:
Westlake Chemical Corporation (WLK) manufactures and markets basic chemicals, vinyls, polymers, and building products worldwide. It operates through two segments, Olefins and Vinyls.
The company’s Board of Directors approved a 5% increase in the quarterly dividend to 26.25 cents/share. This marked the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, Westlake Chemical has managed to grow distributions at an annualized rate of 24.50%.
The company managed to grow earnings from 40 cents/share in 2009 to an estimated $3.76/share in 2019.
This is a cyclical company, whose earnings tend to ebb and flow with the rise and fall of the economy. I find it to be fairly valued at 16.30 times forward earnings. The stock yields 1.70%. I am unsure about Westlake’s prospects in the future, but may monitor the company closer in a future review.
MGE Energy, Inc., (MGEE) operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other.
The board of directors of MGE Energy, Inc. increased the regular quarterly dividend rate over 4% to 35.25 cents per share. This dividend champion has increased its dividend annually for the past 44 years and has paid cash dividends for more than 100 years.
MGE Energy has managed to grow dividends at an annualized rate of 3.30% over the past decade.
Between 2008 and 2018, the company has managed to grow earnings from $1.59/share to $2.43/share.
The stock is overvalued at 31 times earnings, offers a dividend yield of 1.90%, and grows distributions at a low rate. MGE Energy may be worth a closer look at a price that is equivalent to a 4% dividend yield, which may represent a better valuation for a company that grows at 3%/year.
Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids worldwide.
The company’s board of directors authorized a 9% increase in the quarterly dividend to 38 cents/share. This represents the 56th consecutive year of annual dividend increases for this dividend king.
During the past decade, Nordson has managed to grow shareholder distributions at an annualized rate of 13.10%.
The strong growth in dividends was supported by strong earnings growth. Between 2008 and 2018, Nordson managed to grow earnings from $1.71/share to $6.40/share. The company is expected to generate $6.13/share in 2019.
The stock looks slightly overvalued at 22.30 times forward earnings. Nordson yields a safe 1.10%. It may be worth a second look on dips below $122/share.
Relevant Articles:
- How I Manage to Monitor So Many Companies
- How long does it take to manage a dividend portfolio?
- How I manage my dividend portfolio
- Dividend Aristocrats for 2019 Revealed
The three companies for my review include:
Westlake Chemical Corporation (WLK) manufactures and markets basic chemicals, vinyls, polymers, and building products worldwide. It operates through two segments, Olefins and Vinyls.
The company’s Board of Directors approved a 5% increase in the quarterly dividend to 26.25 cents/share. This marked the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, Westlake Chemical has managed to grow distributions at an annualized rate of 24.50%.
The company managed to grow earnings from 40 cents/share in 2009 to an estimated $3.76/share in 2019.
This is a cyclical company, whose earnings tend to ebb and flow with the rise and fall of the economy. I find it to be fairly valued at 16.30 times forward earnings. The stock yields 1.70%. I am unsure about Westlake’s prospects in the future, but may monitor the company closer in a future review.
MGE Energy, Inc., (MGEE) operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other.
The board of directors of MGE Energy, Inc. increased the regular quarterly dividend rate over 4% to 35.25 cents per share. This dividend champion has increased its dividend annually for the past 44 years and has paid cash dividends for more than 100 years.
MGE Energy has managed to grow dividends at an annualized rate of 3.30% over the past decade.
Between 2008 and 2018, the company has managed to grow earnings from $1.59/share to $2.43/share.
The stock is overvalued at 31 times earnings, offers a dividend yield of 1.90%, and grows distributions at a low rate. MGE Energy may be worth a closer look at a price that is equivalent to a 4% dividend yield, which may represent a better valuation for a company that grows at 3%/year.
Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids worldwide.
The company’s board of directors authorized a 9% increase in the quarterly dividend to 38 cents/share. This represents the 56th consecutive year of annual dividend increases for this dividend king.
During the past decade, Nordson has managed to grow shareholder distributions at an annualized rate of 13.10%.
The strong growth in dividends was supported by strong earnings growth. Between 2008 and 2018, Nordson managed to grow earnings from $1.71/share to $6.40/share. The company is expected to generate $6.13/share in 2019.
The stock looks slightly overvalued at 22.30 times forward earnings. Nordson yields a safe 1.10%. It may be worth a second look on dips below $122/share.
Relevant Articles:
- How I Manage to Monitor So Many Companies
- How long does it take to manage a dividend portfolio?
- How I manage my dividend portfolio
- Dividend Aristocrats for 2019 Revealed
Thursday, August 15, 2019
Motif Investing Is Another Free Brokerage Option For Dividend Investors
Last year, I launched my premium newsletter titled Dividend Growth Investor Newsletter. In the newsletter, I build a portfolio of dividend growth stocks with the intention to generate $1,000 in monthly dividend income. I allocate $1,000 each month to ten attractively valued dividend growth stocks every single month using broker Robinhood. I used Robinhood, because the stock broker doesn’t charge commissions for buying individual stocks and it also offers real-time execution of orders.
The downside is that I can only purchase full shares, and not fractional shares. Therefore, if I wanted to buy one share of Johnson & Johnson and one share of Lockheed Martin, I cannot simply put $100 in each – I have to put the equivalent of $500 in both. Since I invest $1,000 each month in that portfolio, this causes some temporary lopsidedness in portfolio weights.
In addition, some readers have complained that Robinhood does not offer not automatic dividend reinvestment and that it doesn’t offer retirement accounts such as Roth IRA’s for example.
I rediscovered Motif Investing, a stock broker that I had reviewed a few years ago for its innovative idea to let you make an investment in up to 30 securities at once for a price of $9.95 for the whole trade. I never really did much investing using Motif, because I figured that I could invest in 30 companies directly and commission free using Robinhood. I could also invest in these 30 companies per month by using a broker such as Interactive Brokers, where I am charged 35 cents/trade. None of these options allow me to buy fractional shares however, though they do offer instantaneous order execution in real-time.
Basically, Motif lets you invest a certain dollar amount into companies in your choosing, completely commission free. The platform allows you to invest through a taxable or tax-deferred portfolio.
In order to do that, you need to open a brokerage account, and provide information about yourself. This is typical, so I will skip it. Just make sure you have your Social Security Number, address, driver’s license and bank information handy. Once you open the account, and add a bank account, you can make investments with it.
While Motif doesn’t allow to DRIP cash dividends into the stock that produced them, they offer an interesting feature called “Auto-Reinvest Dividends”. This feature allows you to reinvest dividends into shares of a single entity of your choice. Otherwise, these dividends will be deposited as cash to your account, and you can choose to reinvest them any way you want. In theory, you can reinvest amounts as low as $1 into stock. I believe that the lowest denominator of individual securities you can purchase is 0.01 shares.
To make an investment after you log on to the account, click on “Trading”, and then click on “ Trade Stocks”.
You are taken to a screen that asks for the stock ticker, whether you want to buy or sell. Under quantity, select “Amount ($)”, and put the dollar amounts you want to invest in the security of your choice. Next, make sure you select an order type of “Market”, and also make sure that the checkbox for “ Execute trade on next market open” is checked.
Click “preview order”, and you are in business once you hit “ place order”. The order will be executed at the open on the next day.
In a Motif account, all single stock trades ( outside of built or community motifs) are commission-free when you select the option to trade at the next market open. Auto-reinvest dividends, auto invest are also commission free.
There are some drawbacks to Motif Investing however. You should be aware that there is a co-called platform fee of $10/quarter, which is assessed on accounts which have a balance below $10,000 or which hasn't paid a stock commission over the preceding 3 months. There are a few other ways to avoid the penalty, such as being a paid Motif Blue member, which costs $19.95/month but gives you 3 commission-free real-time trades and five commission-free next market open trades for motifs built by you or another Motif community member. It also provides early notifications about new IPOs and real-time quotes on all pages. If you have their Impact Member portfolios, you would avoid the quarterly fee, but you will be charged a fee of 0.25%/year, and you will be limited to their robo-adviser like selection of investments. For that reason, make sure you have at least $10,000 to invest there, and you are committed to building out your portfolio through Motif. Robinhood on the other hand, doesn't have a fee on low account balances.
While Motif offers a lot of other options, such as buying already made portfolios, robo-advisor like portfolios, and many other options, I focused only on the direct stock investment feature at low commissions that could be directly applicable to myself. I believe that Motif is a good platform for serious investors who do not want to pay commissions on their investments, buy fractional shares, and be able to invest through a retirement account, and open and maintain an account balance of at least $10,000.
Have you used Motif Investing? If so, I would love to hear your experienced. Please email me at dividendgrowthinvestor@gmail.com
Relevant Articles:
- Create Your Own Dividend ETF With Motif Investing
- Robinhood Offers Free Stock Trading for Dividend Investors
- The Best Broker for Dividend Investors: Interactive Brokers
- Stress Testing Your Dividend Portfolio
The downside is that I can only purchase full shares, and not fractional shares. Therefore, if I wanted to buy one share of Johnson & Johnson and one share of Lockheed Martin, I cannot simply put $100 in each – I have to put the equivalent of $500 in both. Since I invest $1,000 each month in that portfolio, this causes some temporary lopsidedness in portfolio weights.
In addition, some readers have complained that Robinhood does not offer not automatic dividend reinvestment and that it doesn’t offer retirement accounts such as Roth IRA’s for example.
I rediscovered Motif Investing, a stock broker that I had reviewed a few years ago for its innovative idea to let you make an investment in up to 30 securities at once for a price of $9.95 for the whole trade. I never really did much investing using Motif, because I figured that I could invest in 30 companies directly and commission free using Robinhood. I could also invest in these 30 companies per month by using a broker such as Interactive Brokers, where I am charged 35 cents/trade. None of these options allow me to buy fractional shares however, though they do offer instantaneous order execution in real-time.
Basically, Motif lets you invest a certain dollar amount into companies in your choosing, completely commission free. The platform allows you to invest through a taxable or tax-deferred portfolio.
In order to do that, you need to open a brokerage account, and provide information about yourself. This is typical, so I will skip it. Just make sure you have your Social Security Number, address, driver’s license and bank information handy. Once you open the account, and add a bank account, you can make investments with it.
While Motif doesn’t allow to DRIP cash dividends into the stock that produced them, they offer an interesting feature called “Auto-Reinvest Dividends”. This feature allows you to reinvest dividends into shares of a single entity of your choice. Otherwise, these dividends will be deposited as cash to your account, and you can choose to reinvest them any way you want. In theory, you can reinvest amounts as low as $1 into stock. I believe that the lowest denominator of individual securities you can purchase is 0.01 shares.
To make an investment after you log on to the account, click on “Trading”, and then click on “ Trade Stocks”.
Click “preview order”, and you are in business once you hit “ place order”. The order will be executed at the open on the next day.
In a Motif account, all single stock trades ( outside of built or community motifs) are commission-free when you select the option to trade at the next market open. Auto-reinvest dividends, auto invest are also commission free.
There are some drawbacks to Motif Investing however. You should be aware that there is a co-called platform fee of $10/quarter, which is assessed on accounts which have a balance below $10,000 or which hasn't paid a stock commission over the preceding 3 months. There are a few other ways to avoid the penalty, such as being a paid Motif Blue member, which costs $19.95/month but gives you 3 commission-free real-time trades and five commission-free next market open trades for motifs built by you or another Motif community member. It also provides early notifications about new IPOs and real-time quotes on all pages. If you have their Impact Member portfolios, you would avoid the quarterly fee, but you will be charged a fee of 0.25%/year, and you will be limited to their robo-adviser like selection of investments. For that reason, make sure you have at least $10,000 to invest there, and you are committed to building out your portfolio through Motif. Robinhood on the other hand, doesn't have a fee on low account balances.
While Motif offers a lot of other options, such as buying already made portfolios, robo-advisor like portfolios, and many other options, I focused only on the direct stock investment feature at low commissions that could be directly applicable to myself. I believe that Motif is a good platform for serious investors who do not want to pay commissions on their investments, buy fractional shares, and be able to invest through a retirement account, and open and maintain an account balance of at least $10,000.
Have you used Motif Investing? If so, I would love to hear your experienced. Please email me at dividendgrowthinvestor@gmail.com
Relevant Articles:
- Create Your Own Dividend ETF With Motif Investing
- Robinhood Offers Free Stock Trading for Dividend Investors
- The Best Broker for Dividend Investors: Interactive Brokers
- Stress Testing Your Dividend Portfolio
Monday, August 12, 2019
Four Dividend Growth Stocks Increasing Returns To Shareholders
Dividend Growth Investing is a strategy that focuses on companies that consistently raise dividends out of their rising stream of earnings. The goal of the dividend growth investor is to identify such companies, acquire them at an attractive valuation, and build their collection of businesses over time to create a diversified portfolio that can withstand most turbulent economic environments.
As an investor, I think that it is important to know what to look for, when evaluating dividend growth stocks for a potential inclusion into my portfolio.
However, it is equally important to know what to avoid or put on the list for later review.
When I review companies, I look for growth in earnings and dividends, coupled with an adequate dividend payout ratio. It is important to find a business which can deliver on fundamentals. However, it is also important to find that business at an attractive entry valuation.
There were four companies with at least a ten year history of raising dividends, which also approved dividend hikes last week. I do not find them attractive at this time, for the reasons listed in the article behind each company. I am posting this however, as an effort to educate investors that knowing what to avoid is equally important to knowing what to look for. The companies include:
STERIS plc (STE) provides infection prevention and other procedural products and services worldwide. It operates in four segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. STERIS’s Board of Directors has increased the quarterly interim dividend from $0.34 to $0.37 per share. This marked the 15th year of annual dividend increases for this dividend achiever. During the past decade, Steris has managed to grow dividends at an annualized rate of 16.60%.
Between 2008 and 2018, the company managed to grow earnings per share from $1.20 to $3.39. Steris is expected to generate $5.47/share in 2019.
Right now the stock is overvalued at 28.10 times forward earnings and offers a dividend yield of 1%. It may be worth a closer look on dips below $110/share.
International Flavors & Fragrances Inc. (IFF) manufactures flavors and fragrances for use in various consumer products. It operates through three segments: Taste, Scent, and Frutarom. The Board of Directors authorized a 3% increase to the quarterly dividend to $0.75 per share. The company has increased its quarterly dividend payment for the tenth consecutive year. Over the past decade, the company has managed to boost distributions at an annualized rate of 11.50%.
Between 2008 and 2018, the company has managed to boost earnings from $2.87/share to $3.79/share. International Flavors & Fragrances is expected to generate $6.20/share in 2019.
The stock is fully valued and then some at 19.80 times forward earnings and yields 2.40%. The company used to be on the dividend aristocrats list until the mid 1990s, when it cut dividends. I would have placed the company on my watchlist, but the recent slowdown in dividend increases is giving me pause.
Badger Meter, Inc. (BMI) provides flow measurement, control, and communication solutions worldwide. The Board of Directors of Badger Meter, Inc. authorized a 13% increase in its quarterly common stock dividend to $0.17 per share. This marked the 27th year of consecutive annual dividend increases for this dividend champion. Badger Meter has a ten year annualized dividend growth of 10.80%.
Between 2008 and 2018, Badger Meter managed to only boost earnings from 85 cents/share to 95 cents/share. Badger Meter is expected to generate $1.57/share in 2019.
The stock is overvalued at 34.50 times forward earnings and offers a dividend yield of 1%. Given the high valuation and lack of earnings growth over the past decade, I view the stock as a hold at best today.
Ritchie Bros. Auctioneers Incorporated (RBA) an asset management and disposition company, sells industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services. The company increased its quarterly cash dividend by 11% to $0.20 per share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to boost distributions at an annualized rate of 7.50%/year.
Between 2008 and 2019, the company managed to boost earnings from $0.88/share to $1.11/share. Ritchie Bros. Auctioneers is expected to generate $1.19/share in 2019.
The stock is overvalued at 31.30 times forward earnings and yields 2.10%. Given the slow rate of earnings growth over the past decade, coupled with the high valuation, I view the stock as a hold at best.
Relevant Articles:
- Where are the original Dividend Aristocrats now?
- Historical changes of the S&P Dividend Aristocrats
- My Entry Criteria for Dividend Stocks
- 2019 Dividend Champions List
As an investor, I think that it is important to know what to look for, when evaluating dividend growth stocks for a potential inclusion into my portfolio.
However, it is equally important to know what to avoid or put on the list for later review.
When I review companies, I look for growth in earnings and dividends, coupled with an adequate dividend payout ratio. It is important to find a business which can deliver on fundamentals. However, it is also important to find that business at an attractive entry valuation.
There were four companies with at least a ten year history of raising dividends, which also approved dividend hikes last week. I do not find them attractive at this time, for the reasons listed in the article behind each company. I am posting this however, as an effort to educate investors that knowing what to avoid is equally important to knowing what to look for. The companies include:
STERIS plc (STE) provides infection prevention and other procedural products and services worldwide. It operates in four segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. STERIS’s Board of Directors has increased the quarterly interim dividend from $0.34 to $0.37 per share. This marked the 15th year of annual dividend increases for this dividend achiever. During the past decade, Steris has managed to grow dividends at an annualized rate of 16.60%.
Between 2008 and 2018, the company managed to grow earnings per share from $1.20 to $3.39. Steris is expected to generate $5.47/share in 2019.
Right now the stock is overvalued at 28.10 times forward earnings and offers a dividend yield of 1%. It may be worth a closer look on dips below $110/share.
International Flavors & Fragrances Inc. (IFF) manufactures flavors and fragrances for use in various consumer products. It operates through three segments: Taste, Scent, and Frutarom. The Board of Directors authorized a 3% increase to the quarterly dividend to $0.75 per share. The company has increased its quarterly dividend payment for the tenth consecutive year. Over the past decade, the company has managed to boost distributions at an annualized rate of 11.50%.
Between 2008 and 2018, the company has managed to boost earnings from $2.87/share to $3.79/share. International Flavors & Fragrances is expected to generate $6.20/share in 2019.
The stock is fully valued and then some at 19.80 times forward earnings and yields 2.40%. The company used to be on the dividend aristocrats list until the mid 1990s, when it cut dividends. I would have placed the company on my watchlist, but the recent slowdown in dividend increases is giving me pause.
Badger Meter, Inc. (BMI) provides flow measurement, control, and communication solutions worldwide. The Board of Directors of Badger Meter, Inc. authorized a 13% increase in its quarterly common stock dividend to $0.17 per share. This marked the 27th year of consecutive annual dividend increases for this dividend champion. Badger Meter has a ten year annualized dividend growth of 10.80%.
Between 2008 and 2018, Badger Meter managed to only boost earnings from 85 cents/share to 95 cents/share. Badger Meter is expected to generate $1.57/share in 2019.
The stock is overvalued at 34.50 times forward earnings and offers a dividend yield of 1%. Given the high valuation and lack of earnings growth over the past decade, I view the stock as a hold at best today.
Ritchie Bros. Auctioneers Incorporated (RBA) an asset management and disposition company, sells industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services. The company increased its quarterly cash dividend by 11% to $0.20 per share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to boost distributions at an annualized rate of 7.50%/year.
Between 2008 and 2019, the company managed to boost earnings from $0.88/share to $1.11/share. Ritchie Bros. Auctioneers is expected to generate $1.19/share in 2019.
The stock is overvalued at 31.30 times forward earnings and yields 2.10%. Given the slow rate of earnings growth over the past decade, coupled with the high valuation, I view the stock as a hold at best.
Relevant Articles:
- Where are the original Dividend Aristocrats now?
- Historical changes of the S&P Dividend Aristocrats
- My Entry Criteria for Dividend Stocks
- 2019 Dividend Champions List
Monday, August 5, 2019
Seven Companies Committed to Returning More Profits to Shareholders
Companies that grow dividends tend to have better financial health and produce sustained earnings and revenue growth. Dividends help identify well-managed companies; every dividend declaration represents a promise by management and a vote of confidence by the board of directors in the company's leadership. Companies that consistently raise their dividend payouts also raise the bar on their own performance expectations. These dividend increases show the longstanding commitment of returning capital to shareholders for these companies. These increases also provide evidence that companies are executing on their long-term business strategies.
Shares of dividend-paying companies possess built-in value that makes them generally more resilient in down markets, with solid appreciation potential during earnings-driven market upturns — with less price volatility.
I follow the list of dividend increases weekly as part of my dividend investing strategy. I try to approach investing from different points of view, in order to ensure that I can see emerging dividend success stories and monitor existing holdings.
Over the past week, there were several companies that raised their dividends to shareholders. I am listing below the ones which have managed to grow dividends over the past week and also have at least a ten year track record of annual dividend increases. The companies include:
Illinois Tool Works Inc. (ITW) manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.
ITW’s Board of Directors approved a 7% increase in its quarterly dividend to $1.07/share. This marked the 45th consecutive year of annual dividend increases for this dividend champion. During the past decade, Illinois Tool Works has managed to grow investor dividends at an annualized rate of 11.30%.
Between 2008 and 2018, Illinois Tool Works has managed to grow earnings from $2.91/share to $7.60/share. The company is expected to generate $7.70/share in 2019.
The stock is close to fully valued at 19.60 times forward earnings and offers a current dividend yield of 2.80%. Check my analysis of Illinois Tool Works for more information about the company.
Dover Corporation (DOV) provides equipment and components, specialty systems, consumable supplies, software and digital solutions, and support services worldwide. The company operates through three segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment. $5.82/share in 2019
The Board of Directors of Dover increased its quarterly cash dividend by 2.10% to $0.49 per share. This is the 64th consecutive year in which this dividend king has increased its annual cash dividend. During the past decade, this dividend king has managed to grow distributions at an annualized rate of 9.70%.
Dover earned $3.24/share in 2008 and is expected to grow profits to $5.82/share in 2019.
The stock is attractively valued at 16.20 times forward earnings and yields 2.10%. Given the slow rate of dividend increases, I view the stock as a hold.
Carlisle Companies Incorporated (CSL) operates as a diversified manufacturing company. It operates through four segments: Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle Brake & Friction.
The Board of Directors for Carlisle Companies increased the quarterly dividend by 25% to $0.50 per share. This dividend champion has increased its dividend for the 43rd consecutive year. The company has delivered an annualized 9.90% dividend growth over the past decade.
Carlisle Companies managed to earn $2.34/share in 2009 and is expected to generate $8.13/share in 2019.
The stock looks attractively valued at 17.20 times forward earnings and yields 1.40%. Carlisle is a company to add to my list for further research.
Reinsurance Group of America, Incorporated (RGA) engages in reinsurance business. The company’s Board of Directors increased its quarterly dividend by 17% to 70 cents/share. This marked the twelfth year of consecutive annual dividend increases for this dividend achiever. Reinsurance Group of America has delivered annualized dividend growth of 37.70% over the past decade.
Between 2009 and 2018, the company managed to grow earnings from $5.55/share to $11/share. The rapid dividend growth was aided by expanding the dividend payout ratio from a low base.
Reinsurance Group of America is expected to generate $13.14/share in 2019.
The stock looks fairly priced at 11.50 times forward earnings, but yields only 1.80%. That being said, it may be worth adding to my list for further research.
McKesson Corporation (MCK) provides pharmaceuticals and medical supplies in the United States and internationally. It operates in three segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions.
The company’s Board of Directors declared a 5% increase in the regular quarterly dividend to 41 cents per share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 12.90%.
The company has managed to grow earnings from $2.32/share in 2009 to an estimated $14.24/share in 2019.
Right now McKesson is attractively valued at 10.40 times forward earnings and yields 1.10%. Drug distributors have been under pressure over the past four years. This could be a good time to place companies such as McKesson on the list for further research, given the low valuations.
The Scotts Miracle-Gro Company (SMG) manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne, and Other. The company’s Board of Directors approved a 5.40% increase in quarterly dividends to 58 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 15.80%.
The company has managed to grow earnings from $2.32/share in 2009 to an estimated $4.50/share in 2019.
The stock is overvalued at 24.40 times forward earnings and yields 2.10%. The company may be worth a second look if it dips below $90/share.
NewMarket Corporation (NEU) engages in the petroleum additives businesses. The company’s Board of Directors approved an 8.60% increase in its quarterly dividend to $1.90/share. This marked the 14th consecutive year of annual dividend increases. During the past decade, it has managed to grow distributions at an annualized rate of 24.20%.
Between 2009 and 2018, NewMarket has managed to boost earnings from $10.65/share to $20.34/share. The company is expected to generate $21.41/share in 2019.
The stock is overvalued at 21 times forward earnings and yields 1.70%.
Relevant Articles:
- Three Notable Dividend Increases To Consider
- Illinois Tool Works (ITW) Dividend Stock Analysis
- 2019 Dividend Kings List
- Dividend Achievers versus Dividend Contenders & Champions
- 2019 Dividend Champions List
Shares of dividend-paying companies possess built-in value that makes them generally more resilient in down markets, with solid appreciation potential during earnings-driven market upturns — with less price volatility.
I follow the list of dividend increases weekly as part of my dividend investing strategy. I try to approach investing from different points of view, in order to ensure that I can see emerging dividend success stories and monitor existing holdings.
Over the past week, there were several companies that raised their dividends to shareholders. I am listing below the ones which have managed to grow dividends over the past week and also have at least a ten year track record of annual dividend increases. The companies include:
Illinois Tool Works Inc. (ITW) manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.
ITW’s Board of Directors approved a 7% increase in its quarterly dividend to $1.07/share. This marked the 45th consecutive year of annual dividend increases for this dividend champion. During the past decade, Illinois Tool Works has managed to grow investor dividends at an annualized rate of 11.30%.
Between 2008 and 2018, Illinois Tool Works has managed to grow earnings from $2.91/share to $7.60/share. The company is expected to generate $7.70/share in 2019.
The stock is close to fully valued at 19.60 times forward earnings and offers a current dividend yield of 2.80%. Check my analysis of Illinois Tool Works for more information about the company.
Dover Corporation (DOV) provides equipment and components, specialty systems, consumable supplies, software and digital solutions, and support services worldwide. The company operates through three segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment. $5.82/share in 2019
The Board of Directors of Dover increased its quarterly cash dividend by 2.10% to $0.49 per share. This is the 64th consecutive year in which this dividend king has increased its annual cash dividend. During the past decade, this dividend king has managed to grow distributions at an annualized rate of 9.70%.
Dover earned $3.24/share in 2008 and is expected to grow profits to $5.82/share in 2019.
The stock is attractively valued at 16.20 times forward earnings and yields 2.10%. Given the slow rate of dividend increases, I view the stock as a hold.
Carlisle Companies Incorporated (CSL) operates as a diversified manufacturing company. It operates through four segments: Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle Brake & Friction.
The Board of Directors for Carlisle Companies increased the quarterly dividend by 25% to $0.50 per share. This dividend champion has increased its dividend for the 43rd consecutive year. The company has delivered an annualized 9.90% dividend growth over the past decade.
Carlisle Companies managed to earn $2.34/share in 2009 and is expected to generate $8.13/share in 2019.
The stock looks attractively valued at 17.20 times forward earnings and yields 1.40%. Carlisle is a company to add to my list for further research.
Reinsurance Group of America, Incorporated (RGA) engages in reinsurance business. The company’s Board of Directors increased its quarterly dividend by 17% to 70 cents/share. This marked the twelfth year of consecutive annual dividend increases for this dividend achiever. Reinsurance Group of America has delivered annualized dividend growth of 37.70% over the past decade.
Between 2009 and 2018, the company managed to grow earnings from $5.55/share to $11/share. The rapid dividend growth was aided by expanding the dividend payout ratio from a low base.
Reinsurance Group of America is expected to generate $13.14/share in 2019.
The stock looks fairly priced at 11.50 times forward earnings, but yields only 1.80%. That being said, it may be worth adding to my list for further research.
McKesson Corporation (MCK) provides pharmaceuticals and medical supplies in the United States and internationally. It operates in three segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions.
The company’s Board of Directors declared a 5% increase in the regular quarterly dividend to 41 cents per share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 12.90%.
The company has managed to grow earnings from $2.32/share in 2009 to an estimated $14.24/share in 2019.
Right now McKesson is attractively valued at 10.40 times forward earnings and yields 1.10%. Drug distributors have been under pressure over the past four years. This could be a good time to place companies such as McKesson on the list for further research, given the low valuations.
The Scotts Miracle-Gro Company (SMG) manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne, and Other. The company’s Board of Directors approved a 5.40% increase in quarterly dividends to 58 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 15.80%.
The company has managed to grow earnings from $2.32/share in 2009 to an estimated $4.50/share in 2019.
The stock is overvalued at 24.40 times forward earnings and yields 2.10%. The company may be worth a second look if it dips below $90/share.
NewMarket Corporation (NEU) engages in the petroleum additives businesses. The company’s Board of Directors approved an 8.60% increase in its quarterly dividend to $1.90/share. This marked the 14th consecutive year of annual dividend increases. During the past decade, it has managed to grow distributions at an annualized rate of 24.20%.
Between 2009 and 2018, NewMarket has managed to boost earnings from $10.65/share to $20.34/share. The company is expected to generate $21.41/share in 2019.
The stock is overvalued at 21 times forward earnings and yields 1.70%.
Relevant Articles:
- Three Notable Dividend Increases To Consider
- Illinois Tool Works (ITW) Dividend Stock Analysis
- 2019 Dividend Kings List
- Dividend Achievers versus Dividend Contenders & Champions
- 2019 Dividend Champions List
Thursday, August 1, 2019
MSC Industrial Direct (MSM) Dividend Stock Analysis
MSC Industrial Direct Co. (MSM) distributes metalworking and maintenance, repair, and operations (MRO) products in the United States, Canada, and the United Kingdom.
MSC Industrial Direct is a dividend achiever with a 16-year track record of annual dividend increases. The last dividend increase occurred in July 2019, when the company raised its dividend by 19% to 75 cents/share. Two of MSC Industrial Direct’s competitors include W.W. Grainger (GWW) and Fastenal (FAST).
The company has managed to grow earnings per share at a decent clip over the past decade. Earnings per share went up from $3.05 in 2008 to $5.80 in 2018. The company is expected to earn $5.24/share in 2019. I like the consistency of earnings per share over the past decade.
A large part of growth over the past decade was accomplished through acquisitions. However, they have not always added directly to the bottom line. However, they have increased the company’s scale, and diversified operations into new end markets. A big jump in earnings per share occurred in 2018, after corporate tax rates were lowered, which resulted in higher earnings per share. A potential area of growth include international operations, with MSC recently creating a partnership in Mexico. MSC Direct has some operations in the UK and Canada, which could be opportunities for future development as well.
MSC Direct can take market share from smaller competitors, as it offers better pricing and better variety of SKUs to clients. In addition, it tries to integrate in client operations. Some examples include providing of inventory management solutions to customers, performing the procurement process for customers, keeping inventory at the client locations. This creates stickier relationships with the customers. MSC Direct also has industry specialists to provide clients with process improvement and efficiency initiatives, and assist with technical issues.
While the business is very competitive, and has grown through acquisitions, the possibility that the company gets acquired by one of its larger peers is low. That’s because a large portion of the voting power (and ownership as well) with consolidated by the Jacobsen family, which has founded and operates the business. On the other hand, this could be a blessing, because the ruling family could operate with a focus on long-term lasting and sustainable growth. It is generally good to have management whose incentives are aligned with the long-term well being of the business.
As usual, Amazon is a potential threat for companies like MSC Direct. However, it can differentiate itself by offering a focused set of solutions to its clients. Specialization is a competitive advantage to a certain degree, versus a competitor that is large, but is becoming a jack of all trades. MSC Direct also has 99% of the SKUs offered in stock, and offers one day delivery to clients. Although the barriers of entry in competing with the likes of MSC direct are low, it takes some time to build the relationships with customers.
At the same time, shares outstanding remained at around 63 million between 2008 and 2013. Only since 2014 did MSC Industrial Direct start to do some share buybacks, though at a very slow pace.
Over the past decade, the company has managed to grow dividends at an annual rate of 12%/year. This is faster than the growth in earnings per share. I would expect that future dividend growth over the next decade will be closer to 7%/year.
An interesting fact about the company is that it has tended to issue special dividends to shareholders on a few occasions. The last one was a $3/share special dividend in 2015, preceded by a $1/share special dividend in 2011. The first special dividend of $1.50/share was declared and paid in 2005. The company has as shareholder friendly capital allocation strategy, which grows the business while also sending more cash to shareholders in the form of dividends, special dividends and share buybacks.
The dividend payout ratio grew from 24% in 2008 to 38% in 2018. This was possible due to the fact that dividends grew faster than earnings per share. That being said, there is still room for slightly faster growth in dividend payments over earnings.
Right now, the stock seems attractively valued at 13.60 times forward earnings and yields 4.20%. This investment idea for further research was first featured in the Dividend Growth Investor Newsletter.
Relevant Articles:
- Nine Companies That Love To Raise Their Dividends
- A Record Week for Dividend Increases
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Twelve Dividend Machines Boosting Dividends
MSC Industrial Direct is a dividend achiever with a 16-year track record of annual dividend increases. The last dividend increase occurred in July 2019, when the company raised its dividend by 19% to 75 cents/share. Two of MSC Industrial Direct’s competitors include W.W. Grainger (GWW) and Fastenal (FAST).
The company has managed to grow earnings per share at a decent clip over the past decade. Earnings per share went up from $3.05 in 2008 to $5.80 in 2018. The company is expected to earn $5.24/share in 2019. I like the consistency of earnings per share over the past decade.
A large part of growth over the past decade was accomplished through acquisitions. However, they have not always added directly to the bottom line. However, they have increased the company’s scale, and diversified operations into new end markets. A big jump in earnings per share occurred in 2018, after corporate tax rates were lowered, which resulted in higher earnings per share. A potential area of growth include international operations, with MSC recently creating a partnership in Mexico. MSC Direct has some operations in the UK and Canada, which could be opportunities for future development as well.
MSC Direct can take market share from smaller competitors, as it offers better pricing and better variety of SKUs to clients. In addition, it tries to integrate in client operations. Some examples include providing of inventory management solutions to customers, performing the procurement process for customers, keeping inventory at the client locations. This creates stickier relationships with the customers. MSC Direct also has industry specialists to provide clients with process improvement and efficiency initiatives, and assist with technical issues.
While the business is very competitive, and has grown through acquisitions, the possibility that the company gets acquired by one of its larger peers is low. That’s because a large portion of the voting power (and ownership as well) with consolidated by the Jacobsen family, which has founded and operates the business. On the other hand, this could be a blessing, because the ruling family could operate with a focus on long-term lasting and sustainable growth. It is generally good to have management whose incentives are aligned with the long-term well being of the business.
As usual, Amazon is a potential threat for companies like MSC Direct. However, it can differentiate itself by offering a focused set of solutions to its clients. Specialization is a competitive advantage to a certain degree, versus a competitor that is large, but is becoming a jack of all trades. MSC Direct also has 99% of the SKUs offered in stock, and offers one day delivery to clients. Although the barriers of entry in competing with the likes of MSC direct are low, it takes some time to build the relationships with customers.
At the same time, shares outstanding remained at around 63 million between 2008 and 2013. Only since 2014 did MSC Industrial Direct start to do some share buybacks, though at a very slow pace.
Over the past decade, the company has managed to grow dividends at an annual rate of 12%/year. This is faster than the growth in earnings per share. I would expect that future dividend growth over the next decade will be closer to 7%/year.
An interesting fact about the company is that it has tended to issue special dividends to shareholders on a few occasions. The last one was a $3/share special dividend in 2015, preceded by a $1/share special dividend in 2011. The first special dividend of $1.50/share was declared and paid in 2005. The company has as shareholder friendly capital allocation strategy, which grows the business while also sending more cash to shareholders in the form of dividends, special dividends and share buybacks.
The dividend payout ratio grew from 24% in 2008 to 38% in 2018. This was possible due to the fact that dividends grew faster than earnings per share. That being said, there is still room for slightly faster growth in dividend payments over earnings.
Right now, the stock seems attractively valued at 13.60 times forward earnings and yields 4.20%. This investment idea for further research was first featured in the Dividend Growth Investor Newsletter.
Relevant Articles:
- Nine Companies That Love To Raise Their Dividends
- A Record Week for Dividend Increases
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Twelve Dividend Machines Boosting Dividends
Subscribe to:
Posts (Atom)
