Dividend growth investing involves the selection of companies based on a set of criteria such as valuation, strong brands, strong competitive advantages and long histories of annual dividend increases.
It is not about chasing high yielders today, but more about finding the right stock that would grow distributions over time, and thus provide investors with inflation protection in their income. Only companies with strong business models are able to increase dividends every year for long stretches of time. Dividend investors should take the time to study these success stories as they unfold in front of their eyes and even consider adding some to their dividend portfolios.
I tend to review the list of dividend increases every week, in an effort to monitor existing holdings. It is also an effort to identify promising companies for further research. February and March tend to be busy times for dividend increases.
For example, last week, there were 75 companies that raised dividends. Twenty-One of these companies have managed to raise dividends for at least ten years in a row. These companies have a dividend culture which encourages sharing profits with shareholders.
|
Company |
Ticker |
New Dividend |
Old Dividend |
Increase |
Years Dividend Increases |
P/E |
Dividend Yield |
10 year Annualized Dividend Growth |
|
Arbor Realty Trust, Inc. |
ABR |
0.37 |
0.36 |
2.78% |
11 |
9.23 |
8.54% |
17.35% |
|
Brunswick Corporation |
BC |
0.365 |
0.335 |
8.96% |
10 |
9.52 |
1.53% |
38.25% |
|
Cisco Systems, Inc. |
CSCO |
0.38 |
0.37 |
2.70% |
12 |
16.61 |
2.66% |
23.37% |
|
CSX Corporation |
CSX |
0.1 |
0.09333 |
7.15% |
18 |
19.27 |
1.15% |
9.62% |
|
Evans Bancorp, Inc. |
EVBN |
0.62 |
0.6 |
3.33% |
11 |
12.11 |
3.01% |
11.61% |
|
Extra Space Storage Inc. |
EXR |
1.5 |
1.25 |
20.00% |
13 |
27.33 |
3.20% |
23.17% |
|
Financial Institutions, Inc. |
FISI |
0.29 |
0.27 |
7.41% |
12 |
9.7 |
3.64% |
8.57% |
|
Genuine Parts Company |
GPC |
0.895 |
0.815 |
9.82% |
66 |
16.69 |
2.82% |
6.04% |
|
Humana Inc. |
HUM |
0.7875 |
0.7 |
12.50% |
12 |
17.52 |
0.75% |
18.48% |
|
Jack Henry & Associates, Inc. |
JKHY |
0.49 |
0.46 |
6.52% |
33 |
36.04 |
1.14% |
15.92% |
|
The Coca-Cola Company |
KO |
0.44 |
0.42 |
4.76% |
60 |
25.42 |
2.81% |
5.98% |
|
Muncy Bank Financial, Inc. |
MYBF |
0.38 |
0.37 |
2.70% |
21 |
8.05 |
3.97% |
8.50% |
|
NextEra Energy, Inc. |
NEE |
0.425 |
0.385 |
10.39% |
28 |
26.95 |
2.29% |
10.84% |
|
Nu Skin Enterprises, Inc. |
NUS |
0.385 |
0.38 |
1.32% |
21 |
12.8 |
2.87% |
9.93% |
|
Peoples Bancorp of North Carolina, Inc. |
PEBK |
0.18 |
0.17 |
5.88% |
10 |
11.06 |
2.48% |
24.68% |
|
Public Service Enterprise Group Incorporated |
PEG |
0.54 |
0.51 |
5.88% |
18 |
17.81 |
3.34% |
4.06% |
|
Perrigo Company plc |
PRGO |
0.26 |
0.24 |
8.33% |
19 |
18.19 |
2.82% |
12.72% |
|
The Sherwin-Williams Company |
SHW |
0.6 |
0.55 |
9.09% |
43 |
28.27 |
0.90% |
16.28% |
|
Telephone and Data Systems, Inc. |
TDS |
0.18 |
0.17 |
5.88% |
48 |
15.91 |
3.89% |
4.06% |
|
Whirlpool Corporation |
WHR |
1.75 |
1.4 |
25.00% |
12 |
7.56 |
3.42% |
10.94% |
|
Walmart Inc. |
WMT |
0.56 |
0.55 |
1.82% |
49 |
20.52 |
1.62% |
4.59% |
The next step in the process would be to review trends in earnings per share, in order to determine if the dividend growth is on strong ground. Rising earnings per share provide the fuel behind future dividend increases.
This should be followed by reviewing the trends in dividend payout ratios, in order to check the health of dividend payments. A rising payout ratio over time shows that future dividend growth may be in jeopardy. There is a natural limit to dividends increasing if earnings are stagnant or if dividends grow faster than earnings.
Obtaining an understanding behind the company’s business is helpful, in order to determine how defensible the dividend will be during the next recession. Certain companies are more immune to any downside, while others follow very closely the rise and fall in the economic cycle.
Of course, valuation is important, but it is more art than science. P/E ratios are not created equal. A stock with a P/E of 10 may turn out to be more expensive than a stock with a P/E of 30, if the latter is growing earnings and the former isn’t. Plus, the low P/E stock may be in a cyclical industry whose earnings will decline during the next recession, increasing the odds of a dividend cut. The high P/E company may be in an industry where earnings are somewhat recession resistant, which means that the likelihood of dividend cuts during the next recession is lower.