The Scotts Miracle-Gro Company (SMG) manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne, and Other.
The company is a member of the dividend achievers index, having raised dividends for 12 years in a row. During the past decade, the company has managed to grow dividends at an annualized rate of 12.30%. Dividend growth has slowed down over the past five years to 5.50%/year however.
The last dividend increase was in July 2021, when the company hiked its dividend by 6.45% to 66 cents/share.
The company has managed to increase earnings from $2.54//share in 2011 to $6.81/share in 2020. The company is expected to earn $9.19/share in 2021.
The company operates in two segments. The first is US Consumer, which accounts for 72% of sales and 89% of profits. It offers lawn fertilizer, grass seed, as well as weed, pest and disease control and outdoor cleaners. Over 60% of sales from this segment occur at Wal-Mart, Home-Depot and Lowe’s.
The second is Hawthorne, which accounts for 21% of sales and 9% of profits. It is the indoor, urban and hydroponic gardening business. Sales are targeted towards the cannabis industry in the US and Canada.
The other segment does 7% of sales and 2% of profits. It includes their consumer lawn and garden business outside the US, as well as sales to commercial and professional customers.
Americans love spending money on their lawns and gardens, so this is an annual recurring expense in a way. It is likely that demand will remain high, even if consumers have more options of activities outside their homes. Long story short, people will keep spending on their lawns and gardens in the long run, and demand will likely remain high.
The Hawthorne segment would likely grow faster over time, as more states legalize cannabis and there is the potential for legalization at the Federal Level in the coming few years. The company is a picks and shovels play on this upcoming boom in growing recreational cannabis.
The company is exposed to some commodity fluctuations, but it manages to hedge a large portion of them. Strategic acquisitions can assist in growth too.
The dividend payout ratio started out at 41% in 2011, but has been higher in the past. It does seem lower today at 35%. I believe that the lower payout ratio provides the opportunity for dividend growth that may be slightly faster than the growth of earnings per share.
The company has managed to reduce the number of shares outstanding gradually over the past decade. The number of shares outstanding went down from 66 million in 2011 to 56 million in 2020.
While the company pays a regular dividend, and does share buybacks, it also rewards shareholders with special dividends from time to time. It paid $5/share in 2020, $2/share in 2014, and $8/share in 2007.
The stock is fairly valued at 15.77 times forward earnings and yields 1.82%
I was able to find the largest dividend payers in the world for the year 2020, courtesy of Janus Henderson. These are the companies that are paying the most in annual dividends, in billions of dollars.
I crunched the numbers for each company, and included the annual amount of dividends paid in billions of US dollars. You can verify the data by looking at the statement of cashflows.
It is fascinating to learn that Microsoft has distributed more in dividends, than any other publicly traded company in the world.
I have sorted the largest dividend payers, by amount of dividends distributed for 2020 below. I included the name, brief description, dividend track record and amount of dividends paid. The companies include:
Company Name
Ticker
Dividends Paid (Billions)
Microsoft
MSFT
$
16.52
AT&T
T
$
14.96
Exxon Mobil
XOM
$
14.87
Apple
AAPL
$
14.08
China Construction Bank
CICHY
$
13.20
JPMorgan Chase
JPM
$
12.69
Johnson & Johnson
JNJ
$ 10.48
Verizon
VZ
$
10.23
Chevron
CVX
$
9.65
Taiwan Semiconductor
TSM
$
9.22
Microsoft (MSFT) develops, licenses, and supports software, services, devices, and solutions worldwide.
Microsoft paid $16.521 billion in dividends to shareholders in 2020.
Microsoft is a dividend achiever, which has managed to increase dividends annually for 19 years in a row. It has managed to grow dividends at an annualized rate of 14.28% over the past decade.
AT&T (T) provides telecommunication, media, and technology services worldwide. The company operates through Communications, WarnerMedia, and Latin America segments.
AT&T paid $14.956 billion in dividends to shareholders in 2020. This amount would likely decrease in 2022, as the company is planning on cutting dividends as it tries to spin-off some media assets and become a pure-play telecom company.
AT&T is a dividend aristocrat (until the end of 2021), which has managed to increase dividends annually for 36 years in a row. It has managed to grow dividends at an annualized rate of 2.16% over the past decade.
Exxon Mobil (XOM) explores for and produces crude oil and natural gas in the United States and internationally. It operates through Upstream, Downstream, and Chemical segments.
Exxon Mobil paid $14.865 billion in dividends to shareholders in 2020.
Exxon Mobil is a dividend aristocrat, which has managed to increase dividends annually for 38 years in a row. It has managed to grow dividends at an annualized rate of 7.18% over the past decade.
Apple (AAPL) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services
Apple paid $14.081 billion in dividends to shareholders in 2020.
Apple has managed to increase dividends annually for 9 years in a row. It has managed to grow dividends at an annualized rate of 9.70% over the past five years.
JPMorgan Chase (JPM) operates as a financial services company worldwide. It operates in four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).
JPMorgan Chase paid $12.69 billion in dividends to shareholders in 2020.
JPMorgan Chase is a dividend achiever, which has managed to increase dividends annually for 11 years in a row. It has managed to grow dividends at an annualized rate of 33.51% over the past decade.
China Construction Bank (CICHY) provides various banking and related financial services to individuals and corporate customers in the People's Republic of China and internationally. It operates through Corporate Banking, Personal Banking, Treasury Business, and Others segments.
China Construction Bank paid $13.196 billion in dividends to shareholders in 2020.
Johnson & Johnson (JNJ) researches and develops, manufactures, and sells a range of products in the health care field worldwide. It operates through three segments: Consumer Health, Pharmaceutical, and Medical Devices.
Johnson & Johnson paid $10.481 billion in dividends to shareholders in 2020.
Johnson & Johnson is a dividend king which has managed to increase dividends annually for 59 years in a row. It has managed to grow dividends at an annualized rate of 6.55% over the past decade.
Verizon (VZ) offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.
Verizon paid $10.232 billion in dividends to shareholders in 2020.
Verizon is a dividend achiever, which has managed to increase dividends annually for 16 years in a row. It has managed to grow dividends at an annualized rate of 2.60% over the past decade.
Chevron (CVX) engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream.
Chevron paid $9.651 billion in dividends to shareholders in 2020.
Chevron is a dividend aristocrat, which has managed to increase dividends annually for 34 years in a row. It has managed to grow dividends at an annualized rate of 6.21% over the past decade.
Taiwan Semiconductor Manufacturing (TSM) manufactures and sells integrated circuits and semiconductors.
Taiwan Semiconductor Manufacturing paid $9.222 billion in dividends to shareholders in 2020.
It is fascinating that eight of the largest dividend payers worldwide were US companies. Only two seems to be non-US based.
It is even more fascinating that all eight of the US companies are also dividend growth stocks, having increased dividends annually for at least 9 years in a row.
I was also able to obtain the historical evolution of this top 10 dividend payers list.
As part of my monitoring process, I review the list of dividend increases every week. This exercise is helpful in monitoring the progress for existing holdings in my dividend growth portfolio. It is also a helpful exercise to uncover hidden gems for further research.
I like to review the press releases, and see if I can see something that jumps at me. The tone of press releases, the rate of change in dividends, when compared to historical averages and growth in fundamentals, gives me a very decent approximation if management is bluffing or is simply staying the course.
I usually focus on the companies that have managed to increase dividends for at least a decade. During the past week, the following companies raised dividends for their shareholders:
McDonald's Corporation (MCD) operates and franchises McDonald's restaurants in the United States and internationally. Its restaurants offer various food products and beverages, as well as breakfast menu.
McDonald’s increased their quarterly dividend by 7% to $1.38/share. This marked the 45th consecutive annual dividend increase for this dividend aristocrat. McDonald’s has managed to grow the dividends at an annualized rate of 8.40% over the past decade.
Earnings increased from $5.27/share in 2011 to $6.31/share in 2020.
The company is expected to earn $9.04/share in 2021.
The stock is selling for 27.07 times forward earnings and yields 2.26%.
Lockheed Martin Corporation (LMT) is a security and aerospace company that engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
The company raised its quarterly dividend by 7.70% to $2.80/share. This was the 19th year of consecutive annual dividend increases for this dividend achiever.
Lockheed Martin has managed to grow dividends at an annualized rate of 14% over the past decade.
Earnings increased from $7.81/share in 2011 to $24.40/share in 2020.
The company is expected to earn $26.83/share in 2021.
The stock is selling for 12.83 times forward earnings and yields 3.25%.
Artesian Resources Corporation (ARTNA) provides water, wastewater, and other services in Delaware, Maryland, and Pennsylvania.
The company raised its quarterly dividend by 2.50% to 26.75 cents/share. This was the 25th consecutive annual dividend increase for this dividend champion. Artesian Resources has managed to grow the dividends at an annualized rate of 2.90% over the past decade.
Between 2011 and 2020, the company managed to grow earnings from 83 cents/share to $1.79/share.
Artesian Resources is expected to earn $1.75/share in 2021.
The stock sells for 22.10 times forward earnings and yields 2.7%.
Ingredion Incorporated (INGR) produces and sells starches and sweeteners for various industries. It operates through four segments: North America; South America; Asia Pacific; and Europe, Middle East, and Africa.
The company raised its quarterly dividend by 1.60% to 65 cents/share. This is the 11th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company managed to grow dividends at an annualized rate of 16.30%. However, the company has slowed down on the pace of annualized dividend growth in the past three years.
Between 2011 and 2020, Ingredion’s earnings went from $5.32/share to $5.15/share.
Ingredion is expected to earn $6.63/share in 2021.
The stock is selling for 13.39 times forward earnings and yields 2.93%.
Accenture plc (ACN) is a professional services company, provides strategy and consulting, interactive, and technology and operations services worldwide.
The company hiked its quarterly dividend by 10.20% to 97 cents/share. This is the 16th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 14.80%.
Between 2011 and 2020, the company managed to grow earnings from $3.39/share to $7.89/share.
The company is expected to earn $10.11/share in 2022.
The stock is selling for 33.92 times forward earnings and yields 1.13%.
The First of Long Island Corporation (FLIC) operates as the holding company for The First National Bank of Long Island that provides financial services to small and medium-sized businesses, professionals, consumers, municipalities, and other organizations.
The company raised its quarterly dividends by 5.13% to 20 cents/share. This is the 26th year of consecutive annual dividend increases for this dividend champion. Over the past decade, the company has managed to grow dividends at an annualized rate of 7.20%.
Between 2011 and 2020, the company managed to grow earnings from $0.98 share to $1.72/share
The company is expected to earn $1.83/share in 2021.
The stock is selling for 11.05 times forward earnings and yields 3.77%.
I recently stumbled upon a transcript from the 2013 Berkshire Hathaway meeting. It is in response to the Stock Market Capitalization to GDP indicator, which Buffett had used in 1999 to state that the stock market is overvalued.
In 1999, Buffett said that corporate profits are 6% of GDP in the US and that is not sustainable. Today, corporate profits are 10% of GDP (including profits generated outside the US by US corporations). Buffett said that over the last decade business has come back much stronger than he expected in terms of profit [is it because Buffett did not anticipate the gains technology can add to a firm’s profitability?] but employment has lagged behind.
Munger’s response to the relationship between GDP and corporate profits was, "just because Warren thought of something 20 years ago, it does not become a law of nature. There is no natural correlation between the two [GDP and corporate profits]"
This is just fascinating. Basically, Buffett and Munger end up destroying their best ideas as they keep learning. This is why they have been so successful, and have managed to adapt to changing market conditions for 50 – 70 years.
They’ve also managed to adapt to an environment where they managed a few hundred thousand dollars in the 1950s to an environment where they manage hundreds of billion of dollars in 2020s.
They’ve done that by unlearning old ideas, and learning new ideas, after careful observation of their environment.
I will include a few other quotes on the topic, which I have found to be helpful:
Winston Churchill once said to a woman berating him for changing his position, “When the facts change, I change my mind. What do you do, madam?”
Charlie Munger has stated that: “Any year that you don’t destroy one of your best-loved ideas is probably a wasted year.”
It looks like the most difficult part of investing is unlearning.
Contrast this to perma-bears, who have been forecasting doom and gloom for years. In fact, many perma-bears have used the Market Capitalization to GDP as a reason to sell US stocks for over a decade. As a result, they missed out on one of the biggest and longest bull markets in US history.
Anyone that listened to them has missed out on one of the greatest bull markets in US history – the one since 2009. Many are still using this as an excuse to avoid US stocks. This goes hand in hand with folks who are proclaiming that stocks are in a bubble, by looking at Schillers CAPE. This indicator has been bearish on US stocks for decades as well. I would argue that investors are better off using forward earnings estimates, in an effort to value equities. The CAPE pays too much attention to past earnings, and also could be facing downward pressure on earnings due to one-time events that only temporarily depress earnings in a recession ( write-offs).
For example, Schiller's CAPE seems very high at 37 today. But it has been at an elevated level for over 30 years.
Translation: If you listened to the Schiller CAPE, you would have been out of stocks for most of the past 30 years, with the exception of 2 years after the Global Financial Crisis.
People who relied on CAPE would have been out of the market for over 30 years.
By contrast, these are the forward earnings estimates for S&P 500. It looks like S&P 500 is expected to earn $201/share in 2021, and $220.35/share in 2022. At a current price of around $4,500, it does not look as expensive at 22.50 times forward earnings as the CAPE at 37 suggests.
This is the total return performance on S&P 500 since January 1, 1990. If you thought that "stocks are high" for the past 31 years, you missed out on over 2,300% increase in equities. This is the difference between being able to retire and potentially provide for the next generations, and working all your life.
If you are wrong for so long, you should stop and try to understand what happened. That could help in learning from the mistake.
This is a good thing for me to worry about too.
We all have some ideas that are probably plain wrong. We need to evaluate our investments in a cool manner, in order to identify opportunities for improvement. This is an ongoing process of course. If you plan to invest for the next 30 - 40 years for example, then you need to plan to try and improve over the next 30 - 40 years as well.
This means to keep learning and keep improving over time. A large part of the learning process would be discarding old beliefs, which are proven to be wrong. Holding on to them for too long would be costly.
As part of my monitoring process, I review the list of dividend increases every week. This helps me review companies I own. It also helps me identify companies I may be interested in.
When I review the list of dividend increases for the week, I usually focus my attention on the companies that raised dividends for at least a decade. The next step involves doing a quick review of fundamentals, which is documented in this type of article.
I look at trends in earnings per share, dividends per share in order to get an idea of how sustainable the current dividend is. It also helps me get an idea whether dividend growth is supported by growth in earnings, which can help me in deciding the likelihood of future dividend growth.
In general, I also look at valuation as well. I look at P/E ratios in conjunction with earnings and dividend growth. Companies with more dependable earnings get more points than companies whose earnings are more cyclical and harder to depend on.
Now that we got this out of the way, it is time to present the list of companies that 1) Raised dividends last week and 2) have managed to increase dividends annually for at least a decade.
The companies include:
Microsoft Corporation (MSFT) develops, licenses, and supports software, services, devices, and solutions worldwide.
Microsoft raised its quarterly dividend by 10.70% to 62 cents/share. The board of directors also approved a new share repurchase program authorizing up to $60 billion in share repurchases.
This is the 17th year of consecutive annual dividend increase for this dividend achiever. Over the past decade, Microsoft has managed to increase dividends at an annualized rate of 14.30%.
Between 2012 and 2021, Microsoft managed to grow earnings from $2/share to $8.05/share.
Microsoft is expected to earn $8.79/share in 2022.
The stock is selling for 34.71 times forward earnings and yields 0.81%
Texas Instruments Incorporated (TXN) designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing.
Texas Instruments increased its quarterly dividend by 13% to $1.15/share.
This marked the 18th consecutive of dividend increases for this dividend achiever. Over the past decade, Texas Instruments has managed to increase dividends at an annualized rate of 22.50%.
Between 2011 and 2020, Texas Instruments managed to grow earnings from $1.88/share to $5.97/share.
Texas Instruments is expected to earn $8.01/share in 2021.
The stock sells for 24.58 times forward earnings and yields 2.34%.
Philip Morris International Inc. (PM) manufactures and sells cigarettes, other nicotine-containing products, smoke-free products, and related electronic devices and accessories.
Philip Morris International raised its quarterly dividend by 4.20% to $1.25/share. This marked the 13th year of consecutive annual dividend increases for this international dividend achiever. Over the past decade, Philip Morris International has managed to boost dividends at an annualized rate of 7.10%.
Between 2012 and 2021, Philip Morris International managed to grow earnings from $4.85/share to $5.16/share.
Philip Morris International is expected to earn $6.09/share in 2021.
The stock sells for 16.90 times forward earnings and yields 4.86%.
Realty Income, (O) The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
The REIT hiked its monthly dividend to 23.60 cents/share. This was the 112th dividend increase since going public in 1994. The recent dividend is only 0.85% higher than the dividend paid during the same time last year. Over the past decade however, Realty Income has managed to grow dividends at an annualized rate of 4.90%. Realty Income is a dividend aristocrat, which has managed to increase dividends annually since 1995.
Between 2012 and 2020, Realty Income managed to grow FFO/share from $1.98 to $3.31.
Realty Income is expected to generate $3.46/share in FFO.
The REIT is selling for 19.78 times forward FFO and yields 4.14%. Check my analysis of Realty Income for more information about the REIT.
Fifth Third Bancorp (FITB) is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent company of Fifth Third Bank, National Association, a federally chartered institution.
Fifth Third Bancorp raised its quarterly dividend by 11.10% to 30 cents/share. This is the eleventh year of annual dividend increases for this dividend achiever.
Between 2012 and 2021, Fifth Third Bancorp managed to grow earnings from $1.18/share to $1.83/share.
Fifth Third Bancorp is expected to earn $3.63/share in 2021.
The stock is selling for 11.12 times forward earnings and yields 2.97%.
Today, I wanted to share the story of Earl Crawley, a parking lot attendant who accumulated a portfolio of dividend stocks worth $500,000, despite the fact that he never made more than $20,000/year.
Earl Crawley was a 69 year old Baltimore parking lot attendant, when I first heard about him in 2008.
He had worked as a parking lot attendant for a bank for the previous 44 years. He had never made more than $20,000/year. Despite all of that, he had a dividend portfolio worth $500,000 and a fully paid off home.
Earl had a difficult childhood. When he was 4, he and his three sisters and brother were placed in St. Elizabeth's Orphanage on Argonne Drive after his mother contracted tuberculosis. It took nearly three years for his mother to get well and reunite the family. They rented an apartment on Saratoga Street near Lexington Market.
Earl had started working at the age of 13, but his mother took most of his income. He had dyslexia, which is why there were not many opportunities for him beyond some manual labor jobs such as mowing lawns, cleaning houses, being a parking lot attendant. He realized he had to save as much money as he can to overcome life's challenges.
After he got married, and had three children, he supported his family on $80/week in the 1960s. Money was tight, but he lived within his means by keeping costs low and working several jobs to make more income. Despite all obstacles, his frugal attitude helped him to save and invest. He had learned this resourcefulness from his mother, who was able to make ends meet with a limited income from low wage jobs.
How did this parking lot attendant manage to learn about bonds, dividend reinvestment plans and investing in the stock market?
One day, a well-meaning co-worker took Crawley aside and put a bug in his ear: You have a limited education. You better get some money because you won't go far here. That co-worker, became a friend and mentor, spurring the youthful handyman to learn more about the stock market.
His parking lot was close to a lot of financial institutions. Earl kept asking questions, and kept learning, picking the brain of anyone who engaged. Earl listened to bankers, lawyers, brokers, believed in the power of compounding & stocks for the long run.
Mr Earl's Investing Journey
His ultimate goal was to let the money work for him so he didn't have to.
Earl started with savings stamps, savings bonds and later graduated to investing regularly in a mutual fund. He started investing consistently $25/month in a mutual fund for 15 years.
By the late 1970s, his net worth reached $25,000.
By 1981 he started investing directly in blue chip, dividend paying stocks like IBM, Coca-Cola, Caterpillar. He bought a share or two, but kept buying consistently over time. He kept reinvesting his dividends, which increased his shares and dividend income.
By 2007 he had a portfolio worth $500,000, a fully paid off house and no debt
I would imagine that his portfolio generated between $15,000 and $20,000 in annual dividend income
At his income level that was probably tax-free or tax-deferred. That’s because his assets were split between a company 401 (k), an Individual Retirement Account and a taxable account. If you are under a certain income threshold, most of your assets would be non-taxable.
Mr Earl's Portfolio Holdings
Based on information I found about him, his portfolio seemed diversified in blue chip companies that paid a dividend. Examples include:
Coca-Cola (KO)
Caterpillar (CAT)
Bank of America (BAC)
IBM (IBM)
Colgate-Palmolive (CL)
Lockheed Martin (LMT)
Verizon (VZ)
AT&T (T)
Exxon-Mobil (XOM)
He couldn't afford to lose money in the stock market. This is why he focused on stable blue chip companies, which paid a dividend.
He has stated that when he first started out, he had to be conservative and take his time because he couldn't afford to lose money. He looks for companies with stability that pay dividends. While he does use his broker, many times he'll go where my spirit leads him.
He also held mutual funds in his IRA and 401 (k). He did have a good amount of employer stock in his 401 (k) too, which was accumulated through regular payroll deductions.
Earl is also paying it forward, by donating shares to others, teaching them about dividend reinvestment and the power of compounding. He shares his lessons with other members of his church, and starting an investment club.
This knowledge would hopefully compound, make his community better educated and hopefully wealthier. This knowledge would pay dividends for generations to come, hopefully breaking the cycle of poverty for many of his friends.
Seven Wealth Building Lessons from Mr. Earl
After reviewing some interviews with Mr Earl, and reading some articles about him, I have come with a list of several lessons that helped him accumulate his nest egg.
1. Live within your means
2. Try to always save some money
3. Invest regularly on a consistent schedule
4. Invest in blue-chip dividend paying stocks
5. Reinvest those dividends
6. Let your money work hard for you
7. Keep learning
I find stories like that very inspirational. It shows me that anyone can acquire wealth if they live within their means, save and invest prudently, and take advantage of the power of compounding over long periods of time.
One of the largest misconceptions people have is that they need to earn a high income, in order to save. The important thing is to be able to live within your means, and manage your income and your expenses at the same time. The different between income and expenses is the savings rate, which should be then invested in assets such as equities. While earning a high income can help, too often we see highly compensated employees succumb to lifestyle inflation and spend their raises, and then some, on an expensive lifestyle. While earning a low income may seem like an obstacle to building wealth, it may teach folks to be resourceful and live a simpler life withot many wants. This can lead to a cheap lifestyle, that can help accumulate wealth. This is a counter-intuitive idea to many folks today. Yet, people like Mr Earl and Ronald Read, the millionaire gas station attendant, are living proof that you do not need a high income to accumulate a sizeable nest egg.
I believe that if there is a will, there is a way.
Resources about Mr Earl Crawley
I enjoyed viewing the following video of Mr. Earl from Moneytrack:
A dividend growth stock is a company that has managed to grow dividends for a certain number of years. Only a certain type of quality companies can afford to grow the business and shower its shareholders with a rising amount of cash for years if not decades.
I view long streak of consecutive annual dividend increases as a quality filter. It allows me to create a list of companies for further research. While I do examine each company I invest in, I do believe that Dividend Growth Investing has a strong merit.
The first is the research from Ned David Research, which reviewed the performance of companies in the S&P 500 by dividend policy.
It shows that companies that grow dividends and initiated dividends have tended to deliver the best performance for companies in the S&P 500. Companies that paid dividends ended up delivering a better return than the equal weighted S&P 500 and non dividend payers.
The worst performing groups over the past fifty years seem to be non-dividend paying stocks and dividend cutters and eliminators.
The fascinating fact is that over the past decade, a lot of non dividend paying companies like Google, Facebook and Amazon ended up delivering great returns. Historically however, non-dividend paying companies were the ones that could not afford to pay a dividend, which is why their returns were not great. Perhaps the past decade is an aberration; or perhaps it is a shift in corporate policy for US corporations towards less dividends.
The second is the research from S&P, which reviewed the performance of the Dividend Aristocrats. These are companies in the S&P 500, which have managed to grow dividends for 25 years in a row.
Since 1989, the list of dividend aristocrats has done better than S&P 500. However, there were ups and downs in it. The 1990s were not a good time to be a dividend growth investor, as rising stock prices and growth stocks did very well. This is why few investors cared about dividends in the 1990s. In the 2000s however, dividend aristocrat companies did very well. This continued in the 2010s.
Despite the rise in equities, and growth companies since 2010, dividend aristocrats have managed to do well. This is a testament to the quality aspect of dividend aristocrats. After all, only a certain type of exceptionally managed company with a strong moat can deliver the rising earnings per share to be able to grow dividends for at least a quarter of a century in the first place.
Sadly, Dave passed away in 2018. While the list is available for download at DripInvesting, there has been some uncertainty as to who will continue updating it in the future.
Tractor Supply Company (TSCO) operates rural lifestyle retail stores in the United States. The company sells its products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. Tractor Supply Company was founded in 1938 and is headquartered in Brentwood, Tennessee.
The company provides livestock and pet products (47% of 2020 sales); hardware, tools, truck, and towing (21%); seasonal products (such as snow blowers and mowers), gifts, and toys (21%); clothing and footwear (7%); and agriculture (4%).
As of December 2020, it operated 1,923 Tractor Supply retail stores in 49 states. The company operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and Petsense names.
The company had 182 Petsense stores at the end of 2020. It also operates Websites under the TractorSupply.com and Petsense.com names.
Tractor Supply has managed to increase dividends every year, since initiating a dividend in 2010. The company usually increases dividends in May. Tractor Supply has managed to increase dividends over the past 5 years at an annualized rate of 14.60%. Future dividend growth will be a little higher than earnings growth over the next decade, assuming a slight expansion in the payout ratio.
The last dividend increase was in January 2021, when Tractor Supply increased its quarterly dividend by 30% to 52 cents/share. This was the second dividend increase in a year. The first one was in August 2020, when the company increased dividends by 14.28% to 40 cents/share.
Tractor Supply managed to boost earnings from $0.81/share to 2009 to $6.38/share in 2020. The company provided fiscal 2021 diluted EPS outlook in the $7.70 to $8/range.
Tractor Supply expects to grow earnings through several levers, including same stores sales growth, opening new stores, strategic acquisitions and share buybacks.
The company expects to grow the number of stores under Tractor Supply and Petsense brands. During fiscal 2020, the Company opened 80 new Tractor Supply stores and nine new Petsense stores and closed one Tractor Supply store and seven Petsense stores. There are 1923 Tractor Supply stores and 182 Petsense stores. Analysts expect that the number of Tractor Supply stores could reach 2,500 locations over the upcoming decade, and Petsense to a little over 300. According to the company research, there is an opportunity to build out the site levels to 2,500 stores.
The company plans to open about 80 new Tractor Supply stores and 10 new Petsense locations in FY2021.
Tractor Supply acquired a portfolio of 136 Petsense stores in 2016 for $116 million. It expected to grow the number of stores at a double-digit rate of increases every year. There is an opportunity for expansion, given the fact that the pet industry is a $60 billion market. Albeit it is competitive, which means that having a unique niche can pay dividends if the business plan is executed in a smart way.
The company has been repurchasing stock over the past decade (more on that below), which increases earnings per share, and increases your ownership of the enterprise.
The stock had gone nowhere for several years between 2014 and 2019, despite the fact that earnings per share kept growing at a fast pace. It looks like Tractor Supply was overvalued five years ago, and in the past two years the fundamentals are finally catching up to the lofty share price expectations from a few years ago.
The company’s sales are somewhat insulated from the threat of e-commerce, due to its unique assortment of niche goods that are needed right away and/or are expensive to ship. It has a unique geographic positioning in rural areas. However, it is trying to focus on an omni-channel experience, where customers can buy a product online, and pick it up in-store.
Improving productivity, and removing cost from the structure could result in margin increase, and improve profitability as well.
Tractor Supply definitely benefited from Covid-19, as its rural customers flocked to its stores.
The company has managed to reduce the number of shares outstanding over the past decade, through consistent share buybacks. The company remains committed to returning cash to our shareholders through our share repurchases and dividends while maintaining a disciplined approach to capital allocation. The number of shares outstanding has declined from a high of 149 million in 2010 to a low below 117 million shares by late 2020.
The payout ratio has been on the rise since initiating the dividend in 2010. Currently, Tractor Supply distributes approximately 30% of earnings in the form of dividends. This is a low amount, and leaves enough room for future dividend increases, while balancing the needs of the business. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business.
Currently, the stock is selling for 24.85 times forward earnings. It offers a low current yield of 1.05%. While the yield is low, I believe that Tractor Supply offers the opportunity for above average dividend growth over time.
I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing dividend holdings. It also helps me identify companies for further research.
I usually focus my attention on the companies that grow dividends for at least a decade. That because my goal is to find sustainable dividend growers that have managed to grow dividends for at least once full economic cycle.
Over the past week, there were three dividend payers that raised dividends and also have a ten year track record of annual dividend increases. The companies include:
Verizon Communications Inc. (VZ) offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.
The company raised its quarterly dividend by 2% to 64 cents/share. This is the 15th consecutive year Verizon’s Board has approved a quarterly dividend increase. Over the past decade, the company has managed to increase dividends at an annualized rate of 2.60%.
The stock sells for 10.47 times forward earnings and yields 4.63%.
ChoiceOne Financial Services, Inc. (COFS) operates as the bank holding company for ChoiceOne Bank that provides community banking services to corporations, partnerships, and individuals in Michigan.
The company raised its quarterly dividend by 13.60% to 25 cents/share. This marked the tenth year of consecutive annual dividend increases for this newly minted dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 6.50%.
The stock sells for 10 times earnings and yields 4.06%.
Atrion Corporation (ATRI) develops, manufactures, and sells products for fluid delivery, cardiovascular, and ophthalmology applications in the United States, Germany, and internationally.
The company raised its quarterly dividend by 11% to $1.95/share. This marked the 18th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 15.50%.
The stock is selling for 41.30 times forward earnings and yields 1.11%.
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