Thirteen Dividend Growth Stocks Rewarding Shareholders With a Raise

As part of my monitoring process, I review the list of dividend increases. This process helps me review how the companies I own are doing. It also helps me identify companies for further research. I usually focus on the dividend increases for companies with a dividend streak longer than ten years in a row.

For this weekly review, I tend to focus my attention on companies with at least a ten year history of annual dividend increases, which also raised dividends last week. I provide a quick overview of each company that includes the amount of the most recent dividend increase, and compares it to its recent historical record. I also review the streak of annual dividend increases, and review earnings and valuation information.

There were several notable dividend increases over the past week:

This list is not a recommendation to buy or sell stocks. It is simply a list of companies that raised dividends last week. The companies listed have managed to grow dividends for at least ten years in a row.

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.

You can check out my analysis of Johnson & Johnson (JNJ) for more detail on how I review companies.

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Johnson & Johnson (JNJ) Dividend Stock Analysis 2023

 Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944 and has managed to increase them for 61 years in a row. Dividend increases have been like clockwork every year for decades.

The company just raised dividends by 5.30% to $1.19/share. This is the 61st year of consecutive annual dividend increase for this dividend king.

Johnson & Johnson earned $3.86/share in 2012 and managed to grow earnings to $6.73/share in 2022. The company expected to earn $10.51/share in 2023.

Johnson & Johnson has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. This makes the company somewhat immune from economic cycles. Investors looking for a safe and dependable earnings can look no further than Johnson & Johnson. In addition, the company has strong competitive advantages due to its scale, leadership role in various diverse healthcare segments, breadth of product offerings in its global distribution channels, continued investment in R&D, high switching costs to users of its medical devices, as well as its stable financial position.

Future profits growth could come from new product offerings, which are the result of continued investment in research and development, and through strategic acquisitions.

Note that Johnson & Johnson announced a little over an year ago that it would likely be splitting into two companies - one focused on consumer products and the other on pharmaceuticals and medical technologies. It’s consumer health segment will be called Kenvue.

I am not sure how the dividend would be split yet. However, my guess would be that shareholders of legacy Johnson & Johnson would likely generate the same amount of total dividend income. It would just come from two companies, as opposed to one. I would give the spin-off some leniency in getting set-up. But if they do not pay a dividend within an year after the split, I may end up removing them from the portfolio.

Also note that Johnson & Johnson is involved in lawsuits related to its baby powder potentially causing cancer. The suits allege that this powder contains talc, which may have asbestos. These lawsuits could be costly in terms of damages to claimants, and loss of focus on management part. The company has tried to shield itself from those lawsuits by placing the affected subsidiaries in a separate company, and filing for chapter 11 for those subsidiaries only. This request has not been successful in shielding itself from this liability. This could potentially turn out to be very costly for JNJ. Or it could turn out to be a big nuisance, and the company could move on. 

Johnson & Johnson has managed to reduce number of shares outstanding over the past decade, which helped earnings per share growth. Between 2011 and 2013, the number of shares went from 2,775 million to 2,877 million and then declined to 2,664 million. The short bumps up were related to acquisitions.  

The company managed to grow its dividends by 6.40%/year over the past decade. The company's latest dividend increase was announced in April 2022 when the Board of Directors approved a 6.60% increase in the quarterly dividend to $1.13/share.

The dividend payout ratio has increased from 62% in 2012 to 64% in 2022. The ability to generate strong cash flows, have enabled Johnson & Johnson to reward shareholders with higher dividends for 60 consecutive years. I believe that the dividend is safe today, but will likely be limited to future growth in earnings per share of 5% - 6%/year over the next decade. A lower payout is always a plus, since it leaves room for consistent dividend growth and minimize the impact of short-term fluctuations in earnings.

Currently, the stock is fairly valued at 15.30 times forward earnings, yields 2.75% and has a forward dividend payout ratio of 40%. 

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Four Dividend Growth Stocks Delivering Dividend Raises to Shareholders

As part of my review process, I monitor dividend increases every week. I compile the list each week, but focus my attention on companies with a ten year track record of annual dividend increases or longer. I am looking for companies that have managed to grow dividends through a typical full length economic cycle of a boom and bust. A ten year requirement for dividend increases weeds out a lot of cyclical companies. It helps me focus on those who have a higher likelihood of future increases.

The fun doesn't stop there however. I review the recent increase relative to the historical record - meaning the past 5 or 10 years. Next, I review the trend in earnings per share, in order to determine if dividend growth is sitting on a stable foundation. I want a business that can grow earnings per share and grow dividends per share from there. I do not want a business that grows dividends by increasing the dividend payout ratio, as that is unsustainable for dividend increases and the business as a whole. I also want a dividend payout ratio that is sustainable, and generally staying within a tight range over time.

Next, I am going to review valuation. Even the best company in the world is not worth overpaying for. In my case, valuation means looking at P/E ratios and dividend growth rates. I try to account for how defensible the business is, whether I already have a position (and its size), and compare different options out there by yield/growth when I am ready to pull the trigger.

Over the past week, there were four companies that raised dividends to shareholders. All have managed to increase dividends for at least ten years in a row:

Aon plc (AON) is a professional services firm, provides advice and solutions to clients focused on risk, retirement, and health worldwide. 

Aon increased quarterly dividends by 9.80% to $0.615/share. This is the 12th consecutive annual dividend increase for this dividend achiever. 

Over the past decade, the company has managed to increase dividends at an annualized rate of 13.40%. The five year annualized dividend growth is at 9.20%.

Between 2013 and 2022, the company has managed to grow earnings from $3.57/share to $12.23/share.

The company is expected to earn $14.63/share in 2023.

The stock sells for 22.18 times forward earnings and yields 0.76%.

Agree Realty Corporation (ADC) is a publicly traded real estate investment trust primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants. 

Agree Realty raised quarterly dividends by 1.20% to $0.243/share. This is also a 3.84% raise over the dividend paid during the same time last year. This is the eleventh consecutive annual dividend increase for this dividend achiever.

Over the past decade, the company has managed to increase dividends at an annualized rate of 5.70%. The five year annualized dividend growth is at 6.70%.

Between 2013 and 2022, the company has managed to grow FFO from $2.12/share to $3.47/share.

The company is expected to generate $3.95/share in FFO in 2023.

The stock sells for 16.72 times forward FFO and yields 4.40%.

The Procter & Gamble Company (PG) provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. 

Procter & Gamble raised quarterly dividends by 3% to $0.9407/share. This dividend increase will mark the 67th consecutive year that P&G has increased its dividend and the 133rd consecutive year that P&G has paid a dividend since its incorporation in 1890. The company is a member of the elite dividend kings list.

Over the past decade, the company has managed to increase dividends at an annualized rate of 5%. The five year annualized dividend growth is at 5.70%.

Earnings per share have increased from $3.66 in 2012 to $5.81 in 2022. The company is expected to generate $5.86/share in earnings in 2023.

The stock sells for 25.77 times forward earnings and yields 2.50%. Check my review of Procter & Gamble here.

Star Group, L.P. (SGU) sells home heating and air conditioning products and services to residential and commercial home heating oil and propane customers in the United States

Star Group raised dividend by 6.60% to $0.1625/share. This is the eleventh consecutive annual dividend increase for this dividend achiever.

Over the past decade, the company has managed to increase dividends at an annualized rate of 6.80%. The five year annualized dividend growth is at 6.80%.

The stock sells for 15.37 times forward earnings and yields 5.05%.

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Dividend Growth Stocks Offer Higher Returns With Less Volatility

I recently came upon an interesting study from investment manager Blackrock. They analyzed the total returns for different categories of companies in the S&P 500, based on their dividend policy.

They looked at total returns per year for dividend growers and initiators, S&P 500, non-dividend payers and dividend cutters between 1978 and 2022. They compared the total returns between each category. In addition, they also included volatility for each group as well. You can view the results in the chart below:

Source: Blackrock

I have included the commentary from Blackrock verbatim below:

"Dividend-paying stocks have outperformed nondividend payers over the long term with less volatility, but companies that grow their dividends stand out most, as shown at the upper right. Statistically, a company’s record of and commitment to paying a dividend has instilled a measure of resilience. We find their managements are loath to cut a dividend and send a negative signal to the market, so dividend growers tend to be well-run companies built to weather diverse markets. Stocks with a history of dividend growth also have tended to fare better in a rising-rate environment versus the highest-yielding stocks (essentially “bond proxies”) that tend to follow bond prices down as rates rise."

The results of this study run contrary to the popular narrative I see today. Many investors do not understand the signaling value of increasing dividends. Only a quality company can afford to grow the business and also generate a growing amount of excess cashflows for many years, in order to establish a long track record of annual dividend increases.

Procter & Gamble (PG) Increases Dividends for 67th Consecutive Year

The Procter & Gamble Company (PG) provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. Procter & Gamble is a member of the elite dividend kings list, which includes companies that have managed to raise annual dividends for at least 50 years in a row. That's not a small feat.

The company increased quarterly dividends by 3% to $0.9407/share yesterday. This dividend increase marked the 67th consecutive year that P&G has increased its dividend and the 133rd consecutive year that P&G has paid a dividend since its incorporation in 1890. (Source)

Management states that this dividend increase reinforces their commitment to return cash to shareholders, many of whom rely on the steady, reliable income earned with their investment in P&G.

This dividend increase was at the slowest annual rate since 2017. It was also lower than my expectations. The table below shows the year that the company raised dividends, the new increased quarterly dividend payment for that year, and the rate of dividend increase for the year. It focuses on the past 20 years of dividend increases for Procter & Gamble:

Over the past five years, P&G has managed to increase dividends at an annualized rate of 5.78%. The ten year average is 4.98%.

Earnings per share have increased from $3.66 in 2012 to $5.81 in 2022. The company is expected to generate $5.86/share in earnings in 2023.

That being said, the core business is very stable, which means that long-term earnings power should not be affected. However, earnings per share have not grown by much over the past decade. The slowdown in dividend growth is a direct result of the slowdown in earnings per share growth. 

In the past decade, the dividend payout ratio increased from 58% in 2012 to 61% in 2022. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Based on forward earnings, it appears that the forward dividend payout ratio is at 64%, which means that the dividend is sustainable.

The number of shares outstanding has been decreasing gradually over the past decade too.

It is interesting to look at the company's performance over the past decade for perspective. The stock sold for approximately $81/share a decade ago, earned $3.86/share and paid a quarterly dividend of 56.20 cents/share, for an annual dividend yield of 2.77%. The P/E was at 21.

Fast forward to today, and the company is paying a quarterly dividend of 94.07 cents/share, for a total yield on cost of 4.64%. If we take dividend reinvestment into consideration, a $1,000 investment ten years ago would be generating $65.30 in annual dividend income today.

At the current price, the stock seems overvalued at 25.71 times forward earnings. The stock yields 2.47%. Given the slow dividend growth, it does not seem like a good value today. Perhaps, it could be a better value on dips below $120/share.

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Four Notable Dividend Increases From Last Week

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me to monitor existing holdings and to identify companies for further research.

The past couple of weeks have been slow on the dividend increases front. Last week showed some movement in a few companies that announced dividend hikes to their shareholders. The companies include:

Constellation Brands, Inc. (STZ) produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. 

Constellation Brands raised its quarterly dividend by 11.30% to $0.89/share. This marked the 8th year of consecutive annual dividend increases for this dividend contender. During the past five years, the company has managed to increase distributions at an annualized rate of 10%. The three year annualized dividend growth rate is just 1.90% however.

The company earned $10.33/share in 2014, but ended up losing $0.37/share in 2023. Constellation Brands is expected to earn $11.70/share in 2024.

The stock sells for 19.21 times forward earnings and yields 1.61%.

FedEx Corporation (FDX) provides transportation, e-commerce, and business services in the United States and internationally. 

FedEx hiked quarterly dividends by 9.60% to $1.26/share. FedEx has managed to increase annual dividends for three years in a row.

During the past five years, the company has managed to increase distributions at an annualized rate of 18.13%.

Between 2013 and 2022, FedEx has managed to increase earnings from $8.61/share to $14.52/share. The company is expected to earn $14.92/share in 2023.

The stock sells for 15.56 times forward earnings and yields 2.23%.

H.B. Fuller Company (FUL) formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products worldwide. The company operates through three segments: Hygiene, Health and Consumable Adhesives; Engineering Adhesives; and Construction Adhesives. 

H.B. Fuller raised quarterly dividends by 7.90% to $0.205/share. This represents an 8% increase over the prior quarterly dividend and marks the 54th consecutive year in which this dividend king has increased its dividend. During the past five years, the company has managed to increase distributions at an annualized rate of 4.60%.

Between 2013 and 2022, H.B. Fuller has managed to increase earnings from $1.94/share to $3.37/share. 

The company is expected to earn $4.16/share in 2023.

The stock sells for 15.40 times forward earnings and yields 1.28%.

Bank OZK (OZK) provides various retail and commercial banking services. 

Bank OZK raised quarterly dividends by 2.90% to $0.35/share. This was a 12.90% increase over the distribution paid during the same time last year. Bank OZK has increased its quarterly cash dividend on its common stock for 27 years in a row.

During the past five years, this dividend champion has managed to increase distributions at an annualized rate of 12.20%.

Between 2013 and 2022, Bank OZK has managed to increase earnings from $1.27/share to $4.55/share. The company is expected to earn $5.69/share in 2023.

The stock sells for 5.85 times forward earnings and yields 3.91%

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Dividend Aristocrats Raises in 2023

The Dividend Aristocrats List includes S&P 500 companies that have managed to increase annual dividends for at least 25 consecutive years. This is not a small accomplishment, as less than 14% of S&P 500 companies can achieve that. That's a restatement to the quality of the business, stability of cash flows, and ability to grow and shower shareholders with more cash for decades.

So far this year, there have been 22 Dividend Aristocrats that increases dividends. Only one of them, V.F. Corporation (VFC) has cut dividends. As a result, V.F. Corporation was deleted from the list in March 2023. I am still including it in my reviews in 2023, since V.F. Corp was part of the list as of the end of 2022.

The overall dividend growth is positive for the aristocrats in 2023.

That's because the pace of dividend increases so far has overcome this dividend cut.

I expect the following companies to increase dividends in April 2023:

IBM (IBM) has managed to increase quarterly dividends by 1 cent/year over the past three years. I would expect quarterly dividends to reach $1.66/share in 2023, up from $1.65/share in 2022.

Johnson & Johnson (JNJ) has managed to increase quarterly dividends by 5% - 6%/year over the past 5 - 10 years. I would expect a dividend hike to $1.19 - $1.20/share in 2023. The current quarterly dividend is $1.13/share.

Procter & Gamble (PG) has also managed to increase quarterly dividends by around 5% - 6%/year over the past 5-10 years. I would expect a dividend hike to $0.96/share in 2023.

Sysco (SYY) has managed to increase quarterly dividends by 2 cents/share over the past three years. I would expect quarterly dividends to reach $0.51/share in 2023, up from $0.49/share in 2022.

Grainger (GWW) has managed to increase quarterly dividends by about 6%/year over the past five years. I would expect a dividend increase in the quarterly payment to $1.82/share in 2023, up from $1.72/share in 2022.

Thank you for reading!

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