Thirteen Dividend Growth Stocks Rewarding Shareholders With A Raise

One of the best books written on Dividend Growth Investing is called " The Single Best Investment: Creating Wealth With Dividend Growth".  The book discussed a study in the Journal of Financial and Quantitative analysis, which examined the information content of dividend changes. The goal of the study was to understand what dividend changes tell us about a company.

The authors of the study sought to find an appropriate explanation for the well documented association between dividend change announcements and stock price changes. They found that changes in dividends proved to be intended or unintended signaling by management regarding cash flows at the company. 

While many academics had suggested companies that raise their dividends would decrease their capital expenditures (or at least not increase investments), the authors found that just the opposite is true. Companies that increase their dividends are more likely to increase their reinvestment in the business, and companies that decrease their dividends are more likely to reduce capital expenditures. 

The conclusion is inescapable: companies that increase their dividends are companies that are making money—enough to run a thriving business and enough to share with stockholders in the here and now as well.

As dividend growth investors, we are looking for the companies that grow dividends because their business is thriving. One of my monitoring exercises is to review the list of dividend increases every week, and narrow it down to companies that are at least dividend achievers.

There were thirteen companies that raised dividends last week, which also have a minimum ten year streak of annual dividend increases under their belt. The companies are listed in the table below:

Company	Ticker	New Dividend	Old Dividend	Increase	Years Dividend Increases	P/E	Dividend Yield	10 year Annualized Dividend Growth
Assured Guaranty Ltd.	AGO	0.25	0.22	13.64%	11	13.37	1.57%	17.20%
Albemarle Corporation	ALB	0.395	0.39	1.28%	28	30.43	0.82%	9.37%
Cogent Communications	CCOI	0.855	0.83	3.01%	10	69.93	5.34%	15.98%
Cohen & Steers	CNS	0.55	0.45	22.22%	13	18.67	2.72%	11.61%
CTO Realty Growth	CTO	1.08	1	8.00%	10	13.73	6.93%	58.49%
Essex Property Trust	ESS	2.2	2.09	5.26%	28	22.68	2.71%	7.23%
Eaton Corporation	ETN	0.81	0.76	6.58%	13	20.45	2.10%	8.38%
LeMaitre Vascular	LMAT	0.125	0.11	13.64%	11	35.74	1.08%	22.05%
Old Republic International	ORI	0.23	0.22	4.55%	41	9.81	3.47%	2.30%
Sempra Energy	SRE	1.145	1.1	4.09%	18	16.7	3.24%	9.03%
Silgan Holdings	SLGN	0.16	0.14	14.29%	18	10.95	1.52%	9.79%
Southwest Gas	SWX	0.62	0.59	5.08%	16	17.42	3.59%	8.36%
Xcel Energy Inc.	XEL	0.4875	0.4575	6.56%	19	21.15	2.90%	5.81%

I should also note that the board of directors of Chubb (CB) stated that they would recommend a 3.75% dividend increase to $0.83/share in the quarterly dividend of this dividend aristocrat. It would be the 29th consecutive year of annual dividend increases. It wasn't actually approved yet, hence why I didn't include it in the table above. I doubt it would not be approved though.

I wanted to reiterate that this list is not a recommendation to buy or sell anything. It is simply a list of dividend increases from the past week, narrowed down to the companies that have managed to grow annual dividends for at least a decade. If I were to review each company however, I would run it through my checklist, one company at a time.

Notably I would look for the following:

1) Ten years of annual dividend increases
2) Earnings per share that are increasing over the past decade
3) Dividend Payout Ratio below 60% ( however I am willing to make exceptions for REITs, MLPs, Utilities and Tobacco companies)
4) Dividend growth rate that exceeds the rate of inflation ( however this also needs to take into account the rate of earnings and dividend growth)

5) Adequate P/E ratio ( I used to require P/E below 20, but not any more)

Since I have some experience evaluating dividend companies, I also modify my criteria based on the environment we are in and the availability of quality companies. If I see a company with a strong business model and certain characteristics that I like, I may require a dividend streak that is lower than a decade. I have also found success in looking beyond screening criteria by purchasing stocks a little above the borders contained in a screen.

It is important to be flexible, without being too lenient.

Relevant Articles:

- 21 Dividend Growth Stocks Offering Positive Feedback to Shareholders

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- Nineteen Dividend Growth Stocks For Further Research

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35 Dividend Aristocrats For Further Research

The Dividend Aristocrats list includes companies in the S&P 500, which have managed to increase annual dividends for at least 25 years in a row. There are only 65 companies that fit its stringent requirements. 

I often use this list as a starting point for further research. I believe that most of the companies in it are of high quality, and have strong competitive positions in their respected industries. However, I do not believe that all companies are automatic buys at all times.

In order to focus on companies whose recent dividend growth has been supported by earnings growth, I reviewed the financials for all 65 dividend aristocrats. I looked at a ten year summary of earnings for each company, in order to determine if earnings are growing. Without growth in earnings per share, a company cannot grow dividends, and it will not grow intrinsic value per share.

As a result of my review, I came up with a list of 35 dividend aristocrats for further research:

Name	Name	Years Annual Dividend Increases	10 year Dividend Growth	P/E Ratio	Dividend Yield	Dividend Payout Ratio
ABT	Abbott Laboratories	49	7.15%	24.06	1.61%	38.74%
ADP	Automatic Data Processing	46	11.45%	29.37	2.08%	61.09%
AFL	Aflac	40	7.94%	12.01	2.53%	30.39%
AOS	A. O. Smith	28	21.60%	20.06	1.61%	32.30%
APD	Air Products and Chemicals	39	10.11%	23.44	2.68%	62.82%
ATO	Atmos Energy	38	6.47%	19.26	2.57%	49.50%
BF.B	Brown-Forman	37	7.50%	39.82	1.13%	45.00%
BRO	Brown & Brown	28	8.87%	28.16	0.62%	17.46%
CB	Chubb	28	8.80%	13.82	1.56%	21.56%
CHD	Church & Dwight Co.	25	11.50%	30.81	1.09%	33.58%
CINF	Cincinnati Financial	61	4.51%	23.39	2.23%	52.16%
CTAS	Cintas	39	20.20%	33.89	1.02%	34.57%
DOV	Dover	66	7.28%	18.47	1.26%	23.27%
EMR	Emerson Electric	65	3.53%	18.72	2.22%	41.56%
ESS	Essex Property Trust	27	7.23%	22.61	2.65%	59.92%
EXPD	Expeditors International of Washington	27	8.78%	13.9	1.09%	15.15%
GD	General Dynamics	30	9.82%	17.85	2.21%	39.45%
GPC	Genuine Parts Company	65	6.04%	16.69	2.90%	48.40%
GWW	W.W. Grainger	50	9.75%	19.37	1.37%	26.54%
HRL	Hormel Foods	54	14.41%	24.21	2.19%	53.02%
JNJ	Johnson & Johnson	59	6.42%	15.53	2.60%	40.38%
LOW	Lowe's Companies	59	18.80%	18.62	1.44%	26.81%
MCD	McDonald's	46	7.57%	24.67	2.20%	54.27%
MKC	McCormick & Company	35	9.28%	30.67	1.51%	46.31%
MMM	3M	63	10.41%	14.19	4.04%	57.33%
O	Realty Income	29	5.02%	19.65	4.48%	88.03%
PG	The Procter & Gamble	65	5.16%	27.07	2.18%	59.01%
PPG	PPG Industries	50	7.18%	20.03	1.61%	32.25%
ROP	Roper Technologies	29	17.73%	28.32	0.56%	15.86%
SHW	The Sherwin-Williams	43	16.28%	28.27	0.90%	25.44%
SPGI	S&P Global	48	11.91%	25.97	0.81%	21.04%
SWK	Stanley Black & Decker	54	6.15%	13.33	1.95%	25.99%
TGT	Target	54	11.13%	15.45	1.76%	27.19%
TROW	T. Rowe Price Group	35	13.29%	11.85	3.35%	39.70%
WST	West Pharmaceutical Services	29	7.18%	40.06	0.20%	8.01%

You can view the company, ticker, and ten year dividend growth. I have also included P/E ratio and dividend yield, as well as dividend payout ratio. 

Each of these companies has managed to grow earnings over the past decade, which means that dividends have been well supported. If these companies can continue growing earnings per share over the next decade or two, I am confident that they would continue their streak of consecutive annual dividend increases.

However, our work here is not done. Just because we have identified a group of companies for further research, which I would love to own forever, that still doesn't mean that these companies are automatic buys today. Some of these companies seem attractively valued to me today, based on a combination of their P/E ratios and dividend growth. 

Others however seem a little pricey. Therefore, they would likely find a place in my portfolio if they become more attractively valued. This can be achieved either by earnings per share growth, by declines in the share price, or a combination of the two.

This my general framework on how I value companies. I take into consideration many inputs, such as P/E, interest rates, stability of earnings, dividend growth, in order to come up with a general idea of what to invest my money in. It is not a formula however. 

It is helpful to be prepared to act when the right opportunities present themselves. This is why I have a watchlist and general ideas on valuation, so I can act when the time is right.

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