Nine Dividend Growth Stocks With Growing Yields on Cost

I have reviewed nine companies in this article. Each company announced a dividend increase last week, and has managed to increase distributions for at least ten years in a row. I do this exercise as part of my monitoring process.

I have listed each company, followed by a brief description of its business. Next, I listed the most recent dividend increase, and compared it to the ten year average.

After that, I looked at growth in earnings per share over the past decade, followed by forward earnings estimates. It is important to have earnings growth, because without it there is a natural limit to dividend growth.

Last but not least, I looked at valuation for each company. I like to acquire quality businesses and attractive valuations, and do not want to overpay. Overpaying results in locking in lower expected returns.

The companies for this week's review include:

Lancaster Colony Corporation (LANC) manufactures and markets specialty food products for the retail and foodservice markets in the United States. The company operates in two segments, Retail and Foodservice.

Lancaster Colony raised its quarterly dividend by 7.70% to 70 cents/share. This marked the 57th consecutive annual dividend increase for this dividend king. The company has managed to increase dividends at an annualized rate of 8.60% over the past decade.

Between 2009 and 2019, the company managed to grow earnings from $3.17/share to $5.46/share.
The average analyst expects Lancaster Colony to earn $5.60/share in 2020.

Right now the stock is overvalued at 27.90 times forward earnings. The stock yields 1.80%. It may be worth a closer look on dips below $112/share.

Matthews International Corporation (MATW) provides brand solutions, memorialization products, and industrial products worldwide.

Matthews International raised its quarterly dividend by 5% to 21 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. During the past decade, it has managed to increase distributions at an annualized rate of 12.10%.

The company earned $1.90/share in 2009, profits declined to $1.49/share in 2014, but managed to ultimately grow it to $3.37/share in 2019. It is interesting that while revenues had been growing every single year, earnings per share took a detour between 2009 and 2014, before ultimately rebounding.
The wall street consensus is for Matthews International to earn $3.31/share in 2019.

The stock is attractively valued at 10.50 forward earnings. Matthews International yields 2.40%.

MDU Resources Group, Inc. (MDU) engages in regulated energy delivery, and construction materials and services businesses in the United States. It operates through five segments: Electric, Natural Gas Distribution, Pipeline and Midstream, Construction Materials and Contracting, and Construction Services.

The company raised its quarterly dividend by 2.50% to 20.75 cents/share. This marked the 29th consecutive annual dividend increase for this dividend champion. During the past decade, this utility has managed to grow distributions at an annualized rate of 3%.

Earnings per share decreased from $1.59 in 2008 to $1.39 in 2018. MDU Resources is expected to earn $1.58/share in 2019. The lack of earnings growth explains why dividends are not growing by much. At this stage, dividends are growing through the expansion of the dividend payout ratio. This is a stark contrast with the slow but steady growth in earnings per share for the 15 years ending in 2007.

The stock is at the high end of the valuation range at 18.40 times forward earnings and a dividend yield of 2.90%. Given the lack of earnings growth, I would give the stock a pass on further research at this time.

Sysco Corporation (SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through three segments: U.S. Foodservice Operations, International Foodservice Operations, and SYGMA.

The company raised its quarterly dividend by 15.40% to 45 cents/share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, Sysco has managed to grow distributions at an annualized rate of 5%/year.

The company earned $1.77/share in 2009, but profits dipped to $1.15/share through 2015, before rebounding to $3.20/share by 2019. Sysco is expected to earn $3.81/share in 2020.

While Sysco managed to grow revenues during that time period, the lack of earnings growth caused me to sell several years ago. I grew impatient, and sold. This is one of the lessons I am trying to instill with this blog – it is often best to just hold on to a stock through thick or thin, for as long as the dividend is not cut. Focusing too much on year over year numbers, and micromanaging management is usually counterproductive. That’s because you do not know in advance if a business is about to decline for good, or whether this is just a temporary dip. It is always best in my investing to give management the benefit of the doubt, and just hold on to my investment. From a risk management perspective, I hold on, but do not add to the stock any more. I also reinvest dividends elsewhere.

The stock is overvalued at 21.40 times forward earnings. Sysco yields 2.20%. It may be worth a closer look on dips below $76/share.

NIKE, Inc. (NKE) designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide.

The company hiked its quarterly dividend by 11.40% to 24.50 cents/share. This marked the 18th year of annual dividend increases for this dividend achiever. During the past decade, Nike has managed to grow distributions at an annualized rate of 13%/year.

Between 2009 and 2019, Nike managed to grow earnings from $0.76/share to $2.49/share.
Nike is expected to earn $2.97/share in 2019.

Right now, the stock is overvalued at 31.30 times forward earnings. Nike yields 1.05%. If Nike is available below $60/share, it may be worth a second look. I won’t hold my breath for it for the time being.

United Bankshares, Inc. (UBSI), a financial holding company, primarily provides commercial and retail banking products and services in the United States. It operates through two segments, Community Banking and Mortgage Banking.

The company raised its quarterly dividend by 3% to 35 cents/share. This marked the 45th year of annual dividend increases for this dividend champion. During the past decade, it has managed to grow distributions at an annualized rate of 1.60%.

The company hit peak earnings in 2005 of $2.33/share. After that, earnings per share kept dropping until hitting $1.55 in 2009. Earnings have gradually recovered to $2.45/share in 2018.

United Bankshares is expected to earn $2.55/share in 2019.

The stock is fairly valued at 15.50 times forward earnings and offers a dividend yield of 3.50%. The lack of meaningful earnings growth, coupled with the slow rate of dividend growth makes this company a pass for the time being.

Automatic Data Processing, Inc. (ADP) provides cloud-based human capital management solutions worldwide. It operates through two segments, Employer Services and Professional Employer Organization Services.

The company raised its quarterly dividend by 15.20% to 91 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. During the past decade the company managed to increase dividends at an annualized rate of 10%.

The company managed to boost earnings from $2.63/share in 2009 to $5.24/share in 2019. Automatic Data Processing is expected to earn $6.17/share in 2020.

Assurant, Inc. (AIZ), provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The company operates through three segments: Global Housing, Global Lifestyle, and Global Preneed.

The company increased its quarterly dividend by 5% to 63 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow dividends at an annualized rate of 15.50%.

Between 2008 and 2018, the company’s earnings rose from $3.76/share to $3.98/share. Assurant is expected to generate $8.67/share in 2019.

The stock looks fairly valued at 15.30 times forward earnings, but offers a low yield of 1.90%. It may be worth researching further, particularly if it drops.

Snap-on Incorporated (SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial and Industrial Group, Snap-on Tools Group, and Repair Systems & Information Group segments.

The company increased its quarterly dividend by 13.70% to $1.08/share. This marked the 10th consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, Snap-On has managed to boost distributions at an annualized rate of 11%.

The company managed to grow earnings from $4.07/share in 2008 to $11.87/share in 2018. Snap-on is expected to generate $12.26/share in 2019.

The stock is attractively valued at 13.30 times forward earnings and offers a dividend yield of 2.65%.

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