Ten companies delivering value to their shareholders

A dividend increase shows a commitment to enhancing total shareholder returns through both strong business performance and returning cash to shareholders.

It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.

During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:

Ecolab Inc. (ECL) provides water, hygiene, and energy technologies and services worldwide. The company operates through Global Industrial, Global Institutional, Global Energy, and Other segments.

Ecolab raised its quarterly dividend by 2.20% to 47 cents/share. This marked the 28th year of annual dividend increases for this dividend champion. During the past decade, Ecolab has managed to hike distributions at an annualized rate of 12.20%.

Between 2008 and 2018, earnings grew from $1.80/share to $4.88/share. Ecolab is expect to earn $5.86/share in 2019.

The stock is overvalued at 31.80 times forward earnings and offers a low yield of 1%. Management cites an upcoming spin-off as the reason for this small dividend hike. I like the company, and so does Bill Gates. It would be nice to be able to initiate a position on dips below $120/share.

Universal Health Realty Income Trust (UHT) is a real estate investment trust. It invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers.

The REIT hiked its quarterly distributions by 0.70% to 68.50 cents/share. This was the second dividend increase over the past year, bringing the total for the year to 1.48%. This marked the 35th consecutive annual dividend increase for this dividend champion. During the past decade, this dividend champion has managed to grow distributions at an annualized rate of 1.40%.

Between 2009 and 2018, FFO/share has increased slightly from $2.80 to $3.28. That’s a very slow growth in distributions, coupled with a high FFO payout ratio of 83.50%.

Incidentally, when I analyzed this REIT in 2010, I didn’t mind the slow rate of distribution growth over the preceding decade, and the slightly higher FFO payout. I did like the low price to FFO ratio and the yield that was approaching 7%. After holding it for a few years, I sold it in 2013, and reinvested the proceeds in Digital Realty and Omega Healthcare, which seemed faster growing. Ironically, doing nothing would have resulted in a higher returns than doing the transaction. Go figure.

Unfortunately, today this REIT is overvalued at 37.20 times FFO and offers a dividend yield of 2.24%. I would like a better valuation before investing in a REIT like UHT.

WEC Energy Group, Inc., (WEC) provides regulated natural gas and electricity, and nonregulated renewable energy services in the United States. The company operates through six segments: Wisconsin, Illinois, Other States, Electric Transmission, Non-Utility Energy Infrastructure, and Corporate and Other.

The company increased its quarterly dividend by 7.20% to 63.25 cents/share. This marked the 17th year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 15.10%.

The company earned $1.52/share in 2008, and managed to grow the bottom line to $3.34/share by 2018.

WEC Energy Group is expected to generate $3.53/share in 2019. Earnings are expected to be in a range of $3.71 to $3.75 per share for 2020. The company's longer-term objective is to grow earnings per share at a 5 to 7 percent average annual rate, and target a dividend payout ratio of 65 to 70 percent of earnings.

The stock is overvalued at 24.1 times forward earnings and sells at dividend yield of 2.85%. If it dips below $74/share, it may be worth a second look.

Stryker Corporation (SYK) operates as a medical technology company. The company operates through three segments: Orthopedics, MedSurg, and Neurotechnology and Spine.

The company raised its quarterly dividend by 11% to 57.50 cents/share. This market the 27th year of annual dividend increases for this dividend champion. During the past decade Stryker has managed to grow distributions at an annualized rate of 19%.

Earnings rose from $2.78/share in 2008 to $9.34/share in 2018.
Stryker is expected to generate $8.23/share in 2019.

Just like other quality growth names, Stryker is selling for a premium 24.80 times forward earnings and offers a low yield of 1.15%.

The Toro Company (TTC) designs, manufactures, and markets professional and residential equipment worldwide.

The company raised its quarterly dividend by 11.10% to 25 cents/share. This marked the eleventh year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 18.20%/year.

Between 2008 and 2018, the company managed to grow earnings from 78 cents/share to $2.50/share
Toro is expected to generate $2.96/share in 2019.

The stock is overvalued at 26.60 times forward earnings and offers a low yield of 1.25%.

The Hanover Insurance Group, Inc. (THG) provides various property and casualty insurance products and services in the United States. The company operates in three segments: Commercial Lines, Personal Lines, and Other.

The company hiked its quarterly dividend by 8.30% to 65 cents/share. That was the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, this insurer has managed to boost distributions at an annualized rate of 17.30%.

As a result of its line of business, the earnings per share stream is volatile. Earnings rose from $3.86/share in 2009 to $9.09/share in 2018.

The Hanover Insurance Group is expected to generate $8.34/share in 2019.

The stock is selling for 16.30 times forward earnings and offers a well-covered dividend yield of 1.90%.

Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company offers drugs in oncology, immunoscience, cardiovascular, and fibrotic diseases.

The company raised its quarterly dividend by 9.80% to 45 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever.

Bristol-Myers Squibb earned $1.60/share in 2008, and managed to grow it to $3.03/share in 2018.
Bristol-Myers Squibb is expected to earn $3.50/share in 2019.

The stock is fairly valued at 17.10 times forward earnings and yields 3%.

C.H. Robinson Worldwide, Inc. (CHRW) is a third-party logistics company, that provides freight transportation services and logistics solutions to companies in various industries worldwide. The company operates through North American Surface Transportation and Global Forwarding segments.

The company hiked its distributions by 2% to 51 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. During the past decade, the company has managed to grow distributions at an annualized rate of 7.90%.

The company is expected to earn $4.44/share in 2019, and $4.38/share in 2020.

Hillenbrand, Inc. (HI) operates as a diversified industrial company in the United States and internationally. The company operates in two segments, Process Equipment Group and Batesville.

The company eked out a 1.20% increase in its quarterly dividend to 21.25 cents/share. The dividend increase is in line with the ten-year average. The company has managed to grow dividends annually since 2008. However, a lot of databases ignore the fact that Hillenbrand split into two companies in 2008. Prior to that, the company had a 35-year track record of annual dividend increases. This makes this company a dividend champion, and may also qualify it as a dividend king a few years from now.

Unfortunately, earnings have only increased from $1.66/share in 2009 to $1.92/share in 2019. It is no wonder that dividend growth is so anemic, given the slow rate of earnings growth. The company is expected to generate adjusted earnings of $2.53/share in 2020. Although it looks like earnings per share are finally expected to grow, in reality the adjusted figure has a lot of one-time items which may be of recurring nature. For reference, the 2019 adjusted earnings per share were at $2.45.

The stock is selling for 17.10 times earnings and yields 2.60%. Given the slow rate of growth, I do not view the current valuation as attractive enough.

Graco Inc. (GGG) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide.

The company’s Board of Directors declared a quarterly dividend of 17.50 cents per share, which is a 9.40% increase over the previous quarterly distribution. This was the 23rd consecutive annual dividend increase for this dividend achiever. During the past decade Graco has managed to increase its quarterly distributions at an annualized rate of 7.90%/year.

Between 2008 and 2018, the company grew earnings from 66 cents/share to $1.97/share. The company is expected to generate $1.81/share.

The stock is overvalued at 27.20 times forward earnings and yields 1.40%.

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