I believe that dividend growth investors can learn a lot about business from the world of human resources. Human resource departments utilize a lot of tool to gather resumes, screen them using certain criteria, and invite candidates for an interview. Only a few make it to a point where they get a job offer, and then an even smaller percentage end up starting at a company.
I have been to many job interviews over the past 15 - 20 years. I would say that less than 10% of these interviews resulted in jobs doe me. I have been reflecting over my experience during the past couple of decades. I came to the conclusion that looking at companies with a streak of dividend increases is similar to companies that screen candidates that possess a certain qualifications, before inviting them over for an interview.
In the world of dividend growth investing, having a streak of so many consecutive annual dividend increases gets your foot in the door, and makes you eligible for further research.
In the world of recruiting and interviewing, having a certain types of qualifications such as education, certifications and skills, can get your foot in the door for an interview.
Dividend growth investing is similar to looking at resumes and screening candidates
A candidate with a certain skills is more likely to be asked out to an interview. This is just one part of the process however.
They will be asked more detailed questions, in order to determine if they are a good fit for the organization. They are going to be asked questions, in order to determine how they did when the going got tough. Subsequently, they may get an offer, if they are worthy of inclusion in the organization. If a candidate wants too much in remuneration, they are overvalued, and may not be suitable for the organization’s needs at this time. If another candidate asks for too little money, you have to ask yourselves why are they so cheap? Is there something that the hiring committee is missing?
In a similar way, a long streak of dividend increases doesn’t automatically mean I will buy a stock. It simply puts a stock on my list for further research. After that, I will review fundamentals, the business model, valuation, and determine if the stock would be a good fit for my dividend growth portfolio. Even then, I may have an amazing opportunity, which is overvalued. But I still need to use my process of gathering data and compiling a sample of dividend growth stocks with a minimum number of annual dividend increases. The next step is making sure that there are strong funamentals behind that past dividend growth, such as rising earnings and sustainable payout, in order to ensure that dividends can rise in the future. Last but not least, I also want to make sure that these companies are available at attractive valuations.
I also want to make sure that these companies show confidence in their dividend increases. Increasing the dividend demonstrates a confidence and optimism in the continued strength of cash flow generation and financial position,
Now that I have rambler on for a few paragraphs, I wanted to share with you the list of companies that made it to my screen last week. These are companies that raised dividends over the past week, and have a minimum of ten consecutive years of annual dividend increases behind their belts. I review their fundamentals and valuation, in order to determine if they should be researched further, or put away for the time being.
The companies include:
Tanger Factory Outlet Centers, Inc. (SKT), is a publicly-traded REIT headquartered in Greensboro, North Carolina that presently operates and owns, or has an ownership interest in, a portfolio of 39 upscale outlet shopping centers.
Tanger Factory Outlets increased its quarterly dividend by 0.70% to 35.75 cents/share. Since becoming a public company in May 1993, the Company has paid a cash dividend each quarter and has increased its dividend each year, putting it among a very small group of equity REITs to achieve such a milestone. Tanger has managed to grow distributions at an annualized rate of 6.40% over the past decade.
This dividend champion managed to boost FFO/share from $1.35 in 2009 to $2.27 in 2019. The problem is that FFO/share has largely been flat since hitting $2.23/share in 2015, even if it hit a peak at $2.48 in 2018.
The REIT yields 9.80%, and sells for 6.40 times FFO. It is cheap, and punished. I guess the worry is that Mr Market views this company as risky, and FFO/share as unsustainable.
Archer-Daniels-Midland Company (ADM) procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States and internationally. The company operates through four segments: Origination, Oilseeds, Carbohydrate Solutions, and Nutrition.
ADM’s Board of Directors has declared a cash dividend of 36.0 cents per share on the company’s common stock, a 2.85% increase from last quarter’s dividend of 35.0 cents per share. This marked the 45th consecutive year of annual dividend increases for this dividend champion. ADM has managed to grow distributions at an annualized rate of 9.60% during the past decade.
Earnings per share went from $2.62 in 2009 to $3.19 in 2018. The company is expected to earn $3.27/share in 2020
The stock sells for 13.30 times forward earnings and yields 3.20%.
AmerisourceBergen Corporation (ABC) sources and distributes pharmaceutical products in the United States and internationally.
Amerisource Bergen's Board of Directors declared a quarterly dividend of $0.42 per common share, a 5% increase in the quarterly dividend rate from $0.40 per common share. This was lower than the ten year annualized growth of 20.90% over the past decade. This event also marked the 16th year of annual dividend increases for this dividend achiever.
Earnings went from $2.22/share in 2010 to $4.04/share in 2019. The company is expected to generate $7.62/share in 2020
The stock is cheap at 11.20 times forward earnings, but yields only 2%.
MarketAxess Holdings Inc. (MKTX) operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide.
MarketAxess Holdings increased its quarterly dividend by 17.70% to 60 cents/share. During the past decade, the company has managed to grow distributions at an annualized rate of 40.10%. This was the eleventh consecutive annual dividend increase for this dividend achiever.
MarketAxess managed to boost earnings rapidly, from 42 cents/share in 2009 to $4.57/share in 2018
The company is expected to generate $6.01/share in 2020.
The stock sells for 58.90 times forward earnings, yields 0.70%.
Franklin Electric Co., Inc. (FELE) designs, manufactures, and distributes water and fuel pumping systems worldwide. It operates in three segments: Water Systems, Fueling Systems, and Distribution.
Franklin Electric raised its quarterly dividend by 7% to 15.50 cents/share. This is the 28th consecutive year of annual dividend increases for this dividend champion. Over the past decade, it has managed to boost dividends at an annualized rate of 8.80%
The company managed to grow earnings from 56 cents/share in 2009 to $2.23/share in 2018. The company is expected to earn $2.16/share in 2019 and $2.39/share in 2020.
Franklin Electric is overvalued at 26.70 times forward earnings and yields 1.10%
Rollins, Inc. (ROL), provides pest and termite control services to residential and commercial customers.
Rollins, Inc. announced that the Board of Directors approved a 14.30% increase in the Company's quarterly cash dividend. The increased regular quarterly cash dividend of $0.12 per share. This marks the 18th consecutive year the Board has increased its dividend a minimum of 12.0% or more. Over the past decade, Rollins has managed to increase dividends at an annualized rate of 17.60%.
Rollins has managed to grow earnings from 25 cents/share in 2009 to 71 cents/share in 2018. Rollins is expected to earn $0.80/share in 2020.
The stock is overvalued at 47 times forward earnings. It yields 1.25%.
S&P Global Inc. (SPGI) provides ratings, benchmarks, analytics, and data to the capital and commodity markets worldwide. The company operates through four segments: S&P Global Ratings (Ratings), S&P Global Market Intelligence (Market Intelligence), S&P Global Platts (Platts), and S&P Dow Jones Indices (Indices).
The Board of Directors of S&P Global (SPGI) approved a 17.5% increase in the regular quarterly cash dividend on the Company's common stock. The Company has paid a dividend each year since 1937 and is one of only 24 companies in the S&P 500 that has increased its dividend annually for at least the last 47 years. The new annualized dividend rate of $2.68 per share represents an average compound annual dividend growth rate of 10.1% since 1974. The annualized dividend growth is at 9.70% over the past decade.
Between 2009 and 2018, this dividend aristocrat has managed to boost earnings from $2.33/share to $7.73/share.
The company is expected to earn $9.43/share in 2019 and $10.48/share in 2020.
The stock is overvalued at 31.15 times forward earnings and offers a dividend yield of 0.90%.
BlackRock, Inc. (BLK) is a publicly owned investment manager. BlackRock, Inc. announced that its Board of Directors approved a 10% increase in the quarterly cash dividend to $3.63 per share. The company has an annualized dividend growth of 15.50% over the past decade.
Between 2009 and 2018, the company grew earnings from $6.11/share to $26.58/share.
The company earned $28.43/share in 2019 and is expected to generate $31.94/share in 2020.
The stock is fairly valued at 16.50 times forward earnings and a dividend yield of 2.75%. Check my analysis of Blackrock for more information about the company.
California Water Service Group, (CWT) provides water utility and other related services in California, Washington, New Mexico, and Hawaii.
California Water Service Group's Board of Directors declared the company's 300th consecutive quarterly dividend, increasing the annual dividend from $0.79 to $0.85. This represents the 53rd consecutive annual dividend increase for this dividend king. The company has managed to increase dividends at an annualized rate of 3% over the past decade.
California Water Service Group grew earnings from 97 cents/share in 2009 to $1.36/share by 2018.
The company is expected to earn $1.38/share in 2019 and $1.57/share in 2020.
The stock is overvalued at 38.10 times forward earnings and yields 1.60%
Chevron Corporation (CVX) engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream.
The Board of Directors of Chevron Corporation declared a quarterly dividend of one dollar and twenty-nine cents ($1.29) per share, an increase of 8.4 percent. This increase puts Chevron on track to make 2020 the 33rd consecutive year with an increase in annual dividend payout. The company has managed to increase dividends at an annualized rate of 6% over the past decade.
This dividend champion managed to boost earnings from $5.24/share in 2009 to $7,74/share by 2018. Chevron earned $1.54/share in 2019, and is expected to generate an adjusted $6.81/share in 2020.
The stock is fairly valued at 17.10 times forward earnings and a yield of 4.80%.
SJW Group, (SJW) provides water utility services in the United States. It engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water.
SJW Group announced that the Board of Directors approved an increase in the 2020 annual dividend over total dividends paid in 2019 of 6.7% or $0.08 per share to $1.28 per share. Dividends have been paid on SJW Group’s and its predecessor’s common stock for 305 consecutive quarters and the annual dividend amount has increased in each of the last 52 years. The company has managed to increase dividends at an annualized rate of 6.20% over the past decade.
This dividend king grew earnings from 81 cents/share in 2009 to $1.82/share in 2018. The company is expected to earn $1.68/share in 2019 and $2.31/share by 2020.
SJW Group stock is overvalued at 43.70 times forward earnings and yields 1.75%.
Church & Dwight Co., Inc. (CHD) develops, manufactures, and markets household, personal care, and specialty products. It operates in three segments: Consumer Domestic, Consumer International, and Specialty Products Division.
The Company’s Board of Directors declared a 5.5% increase in the regular quarterly dividend from $0.2275 to $0.24 per share. This is the 24th consecutive year in which the Company has increased the dividend. The company has managed to increase dividends at an annualized rate of 23% during the past decade.
Church & Dwight earned 85 cents/share in 2009, and managed to boost profits to $2.27/share in 2018. Church & Dwight earned $2.44/share in 2019, and is expected to generate $2.69/share in 2020.
The stock is overvalued at 29.90 times forward earnings and yields 1.30%.
Cincinnati Financial Corporation (CINF) provides property casualty insurance products in the United States. The company operates in five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments.
The company increased its quarterly dividend by 7.10% to 60 cents/share. This marked the 60th consecutive annual dividend increase for this dividend king. The company has managed to increase dividends at an annualized rate of 3.50% during the past decade.
Between 2009 and 2018, the company’s earnings went from $2.65/share to $1.75/share. The company is expected to earn $4.08/share in 2019.
Cincinnati Financial is overvalued at 25.70 times forward earnings and yields 2.30%.
Polaris Inc. (PII) designs, engineers, manufactures, and markets power sports vehicles worldwide. It operates in five segments: ORV/Snowmobiles, Motorcycles, Global Adjacent Markets, Aftermarket, and Boats.
Polaris Inc. announced that its Board of Directors approved a 2 percent increase in the regular quarterly cash dividend, raising the payout to $0.62 per share. This increase represents the 25th consecutive year of Polaris increasing its dividend. Annualized dividend growth has been dropping over the past one, three and five years. For reference, Polaris had managed to grow dividends at an annualized rate of 12% during the past decade.
Between 2009 and 2019, the company managed to grow earnings from $1.53/share to $5.20/share. The company expects adjusted profits of $6.80 - $7.05/share in 2020. Those include one-time items which are excluded from EPS,
This dividend champion seems attractively valued at 13.20 times forward earnings and a dividend yield of 2.70%.
Relevant Articles:
- Why Dividend Growth Stocks Rock?
- How to increase your dividend income with these four stocks
- Back test Results of one Rule of Thumb
- Dividend Champions List for 2020