I review the list of dividend increases each week, as part of my monitoring process. This exercise allows me to monitor existing holdings, but also to keep in touch with companies that I may want to put on my list for further research.
I look for companies that can grow dividends, because their underlying business generates too much extra cash each year.
Dividends bring more discipline to the management's investment decision-making. Holding onto profits might lead to excessive executive compensation, sloppy management, and unproductive use of assets. Studies show that the more cash a company keeps, the more likely it is that it will overpay for acquisitions and, in turn, damage shareholder value. In fact, companies that pay dividends tend to be more efficient in their use of capital than similar companies that do not pay dividends.
I view dividend increases as a good gauge of managements near term business expectations. If a company can continue growing the dividend, that's great and shows that possibly business is going as usual. If a company stops growing dividends or cuts them, I see it as an indication that things are not going as well. There is more nuance to all of that however.
A cautious dividend hike could be an indication of soft business demand or management observing a slowdown down the road. It could also be an indication that the business is more cyclical than management cares to admit.
A dividend increase along a range of outcomes shows me that management expects business as usual, which is something I look at.
Sometimes, businesses raise dividends fast, which may indicate optimism. A too high of a dividend increase may also show that management is too overconfident however.
Ultimately, a long history of dividend growth is an indication of a quality company with strong competitive advantages which also had a strong tailwinds to propel the business forward. Only a certain type of company can manage to grow the business and raise dividends for at least a decade. In other words, rising dividends are an end result of a great business. Whether that business can continue being great or not depends on a lot of factors. Either way, a strong track record of annual dividend increases, along with a good valuation is enough to make me want to research this business.
During the past week, there were seven companies that managed to raise dividends. All of these companies have managed to grow dividends for at least ten years in a row. The companies include:
Fifth Third Bancorp (FITB) operates as a diversified financial services company in the United States.
The bank hiked quarterly dividends by 10% to $0.33/share. This is the 12th year of consecutive annual dividend increases for this dividend achiever.
During the past decade, the company has managed to increase dividends at an annualized rate of 14.80%. The company did cut dividends during the Global Financial Crisis. Annual dividends per share have still failed to exceed the 2007 highs at $1.70/share.
The stock sells for 9.83 times forward earnings and yields 3.77%.
New Jersey Resources Corporation (NJR), an energy services holding company, provides regulated gas distribution, and retail and wholesale energy services.
The company increased quarterly dividends by 7.60% to $0.39/share.
NJR has paid quarterly dividends continuously since its inception in 1952, and this marks the 29th dividend increase over the last 27 years.
During the past decade, this dividend champion has managed to increase dividends at an annualized rate of 6.60%.
The stock sells for 18.22 times forward earnings and yields 3.24%
Philip Morris International Inc. (PM) operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector.
The company increased quarterly dividends by 1.60% to $1.27/share. This is much lower than the ten year rate of annualized dividend growth of 6.10% and the 5 year rate of annualized dividend growth of 3.40%.
The stock sells for 17 times forward earnings and yields 5.32%
Realty Income (O), The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
Realty Income increased its monthly dividend to $0.2480/share. That's a 0.20% raise over the last quarter, but 5.08% increase over the dividend from this time last year. Over the past decade, the company has managed to grow distributions at an annualized rate of 5%. The 5 year rate is 3.40%
This is the 117th dividend increase since Realty Income's listing on the NYSE in 1994.
The stock sells for 16 times FFO and yields 4.65%.
Texas Instruments Incorporated (TXN) designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing
The company increased quarterly dividends by 7.80% to $1.24/share. The announcement marks 19 consecutive years of dividend increases for this dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 22.40%.
The stock sells for 17.27 times forward earnings and yields 3%
U.S. Bancorp (USB) provides various financial services to individuals, businesses, institutional organizations, governmental entities and other financial institutions in the United States. It operates in Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support segments.
The bank increased quarterly dividends by 4.30% to $0.48/share. Over the past decade, the company has managed to grow dividends at an annualized rate of 15%. It did cut dividends during the Global Financial Crisis, and has been growing them since. Last year, the annual dividend exceeded the 2008 amounts
The stock is selling for 10.80 times forward earnings and yields 4.19%.
Farmers & Merchants Bancorp, Inc. (FMAO) operates as the bank holding company for The Farmers & Merchants State Bank that provides commercial banking services to individuals and small businesses in northwest Ohio and northeast Indiana.
The bank increased quarterly dividends by 10.50% to $0.21/share. This represents the 28th consecutive annual increase in the Company’s regular dividend payment since 1994. Over the past decade, the company managed to grow dividends at an annualized rate of 6.10%.
The stock sells for 10.49 times forward earnings and yields 2.75%.
Relevant Articles:
- Eight Companies Expected to Raise Dividends in September