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