I am a long-term dividend growth investor. I buy companies with a long streak of annual dividend increases, at the right valuation, and I hold them for as long as they do not cut dividends. I am a very patient buy and hold investor. My goal has always been to achieve a certain level of target dividend income. I invest with the end goal in mind, which is to generate that income to pay bills in retirement, and have it grow above the rate of inflation.
I have discussed before the process I follow to come up with investment ideas. One of the ways I come up with ideas is during my monitoring process. Every week, I compile the list of dividend increases, and focus on those companies with at least a ten year history of annual dividend increases. I want to focus on companies that have managed to raise their dividends through the ups and downs of an economic cycle. This gives me a better feel that these dividends are coming from a sustainable business model, not a company that simply got lucky. I want dividends I can count on, whether we have a recession or a boom.
My monitoring process around dividend increases helps me to see how existing portfolio holdings are doing. It also helps me identify new ideas for further research.
In general, I look at the dividend increase, and compare it to the rate of dividend growth during the past five or ten years. It is helpful to see how sticky the dividend growth rate really is.
Next, I look at trends in earnings per share, in order to determine if the dividend is on solid ground. Without growth in earnings per share, there is a natural limit to future dividend increases. This step is best done when I review trends in the payout ratio as well.
I also look at valuation, but I will have to tell you that valuation is more art than science. You have to look at trends in earnings and dividends, along with the valuation metrics such as P/E ratio and dividend yield. You also have to determine if those trends could last.
During the past week, there were several companies that met the criteria as discussed above. The one exception is Amgen ( 9 year streak of dividend increases). The companies include:
Waste Management, Inc. (WM) provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America.
The company increased its quarterly dividend by 5.50% to 57.50 cents/share. This is the 19th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow dividends at an annualized rate of 5.90%.
The company managed to grow earnings from $2.01/share in 2009 to $3.91/share in 2019. Waste management is expected to earn $4/share in 2020.
The stock is selling for 29 times forward earnings and yields 1.95%.
Franklin Resources, Inc. (BEN) is a publicly owned asset management holding company. The firm invests in the public equity, fixed income, and alternative markets.
The company raised its quarterly dividend by 3.70% to 28 cents/share. This marked the 41st consecutive annual dividend increase for this dividend champion. The company has managed to grow distributions at an annualized rate of 14% during the past decade. The rate of dividend growth will be slowing down in the future, due to lack of EPS growth.
Between 2009 and 2019, Amgen managed to grow earnings from $4.51/share to $12.88/share.
The company is expected to generate $2.74/share in 2021.
The stock is selling for 9.12 times forward earnings and yields 4.50%.
Amgen Inc. (AMGN) discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology and neuroscience areas.
The company raised its quarterly dividend by 10% to $1.76/share. This marked the 9th year of consecutive annual dividend increases for this future dividend achiever. Over the past five years Amgen has managed to increase distributions at an annualized rate of 18.90%.
Amgen is expected to earn $16.17/share in 2020.
The stock is selling for 14.30 times forward earnings and yields 3.05%.
The Ensign Group, Inc. (ENSG) provides health care services in the post-acute care continuum and other ancillary businesses.
The company raised its quarterly dividend by 5% to 5.25 cents/share. This was the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow dividends at an annualized rate of 14.10%.
Ensign Group earned $0.78/share in 2009, and managed to grow it to $1.97/share by 209.
The company is expected to earn $3.11/share in 2020
The stock is selling for 24.50 times forward earnings and yields 0.27%.
ABM Industries Incorporated (ABM) provides integrated facility solutions in the United States and internationally. The company operates through Business & Industry, Technology & Manufacturing, Education, Aviation, and Technical Solutions segments.
ABM Industries raised its quarterly dividend by 2.70% to 19 cents/share. This marked the 54th year of consecutive annual dividend increases for this dividend king. It has managed to increase dividends at an annualized rate of 3.30% over the past decade.
ABM Industries is expected to earn $2.34/share in 2021. Earnings per share have been largely flat for a long period of time.
The stock is selling for 17.05 times forward earnings and yields 1.90%.
Balchem Corporation (BCPC) develops, manufactures, and markets specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, medical sterilization, and industrial markets in the United States and internationally.
The company raised quarterly dividends by 11.50% to 58 cents/share. In the past decade, the company has managed to increase dividends at an annualized rate of 20.40%.
Ted Harris, Balchem’s CEO and President, said, “Balchem has a long-standing commitment to an annual dividend and we are pleased to announce the continuation of that commitment. This dividend represents the eleventh consecutive increase in our annual dividend, reflecting both the consistently outstanding financial performance the company has delivered and the Board’s continued confidence in our long-term strategies.”
Between 2009 and 2019, earnings grew from 93 cents/share to $2.45/share.
Balchem is expected to generate $3.30/share in 2020
The stock is selling at 34.30 times forward earnings and yields 0.50%.
Washington Trust Bancorp, Inc. (WASH) operates as the bank holding company for The Washington Trust Company, of Westerly that offers various financial services to individuals and businesses. The company operates in two segments, Commercial Banking and Wealth Management Services.
The company raised its quarterly dividend by 2% to 52 cents/share. This marked the tenth consecutive annual dividend increase for this dividend achiever. The bank managed to grow dividends at an annualized rate of 8.80% during the past decade. It also did not cut dividends during the financial crisis, but just kept them unchanged.
Between 2009 and 2019, earnings grew from $1/share to $3.96/share. Before the financial crisis, the company earned $1.82/share in 2006.
The bank is expected to earn $3.92/share in 2020.
The stock is selling for 11.50 times forward earnings and yields 4.60%.
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