I review the list of dividend increases as part of my monitoring process. I use this exercise to review existing holdings, and also to potentially identify companies for further research.
The dividend increase provides helpful information about the business from management's point of view. That's because management teams determine the rate of the increase after evaluating the business needs, the economic environment and the business competitive landscape. In a way, a dividend increase is a very good gauge of management expectations for how the business will perform in the near term.
For example, if a business starts growing dividends at a slower pace than usual, or it starts growing dividends at a nominal pace, that's a potential warning sign for further investigation. It doesn't mean that the business cannot recover soon; it merely shows that something is going on to cause this deceleration.
It's helpful to review dividend increases relative to past dividend increases. It's also helpful to do that relative to the payout ratio and the trend in the payout ratio over the past decade. Last but not least, you need to review the rate of dividend growth to the trend in earnings per share as well.
I am not the only one who thinks this way and appreciates the signaling that dividend increase announcements present. Nick Train, who is the portfolio manager behind Lindsell Train shares these sentiments as well (source):
There is the noise accompanying the results from public companies, with analysts and investors poring over the numbers and CEO statements looking for an interpretative edge. Cutting through that noise, I sometimes think it is easiest to simply look at the dividend announcement by the company. To us the increase, maintain or cut decision taken by a board of directors about its current dividend captures an enormous amount of information about mid-term prospects. Below I note the six dividend announcements from our reporting companies – in order of position size in the Portfolio.
Over the past week, there were several companies that managed to increase dividends, AND also having at least a ten year track record of annual dividend increases. The companies include:
Broadridge Financial Solutions, Inc. (BR) provides investor communications and technology-driven solutions for the financial services industry.
The company increased quarterly dividends by 10.30% to $0.80/share. Broadridge has increased its dividend every year since becoming a public company in 2007. Over the past decade, the company managed to boost dividends at an annualized rate of 14.90%. That's consistent with the 5 year average of 14.30%.
This dividend achiever managed to grow earnings from $2.20/share in 2014 to $5.36/share in 2023. The company is expected to generate $7.62/share in 2023.
The stock sells for 23.87 times forward earnings and yields 1.75%.
Cogent Communications Holdings, Inc., (CCOI) provides high-speed Internet access, private network, and data center colocation space services in North America, Europe, Asia, South America, Australia, and Africa.
The company increased quarterly dividends by 1.10% to $0.945/share. This is the 11th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company managed to boost dividends at an annualized rate of 32.70%. The five year average is 14.60%.
The company's earnings went from $1.22/share in 2013 to $0.11/share in 2022. The company is expected to generate $22.11/share in 2023. FCF/share increased from $0.71 in 2013 to $2.02 in 2022.
For some reason the stock sells for 246 times forward earnings and yields 6.48%. I do not understand this company and its financials, just reporting for the sake of consistency of this report.
J&J Snack Foods Corp. (JJSF) manufactures, markets, and distributes nutritional snack foods and beverages to the food service and retail supermarket industries in the United States, Mexico, and Canada. It operates through three segments: Food Service, Retail Supermarkets, and Frozen Beverages.
The company increased quarterly dividends by 5% to $0.735/share. This is the 18th year of consecutive annual dividend increases for this dividend achiever. Annualized dividend growth has been declining, from 17.50% over the past decade to 9.10% over the past 5 years.
The company's earnings went from $3.43/share in 2013to $2.47/share in 2022. The company is expected to generate $4.48/share in 2023.
The stock sells for 38 times forward earnings and yields 1.72%.
Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids worldwide. It operates through three segments: Industrial Precision Solutions (IPS); Medical and Fluid Solutions; and Advanced Technology Solutions (ATS).
The company increased quarterly dividends by 4.60% to $0.68/share. This increase represents Nordson’s 60th consecutive year of annual dividend increases. It's also a pretty small increase relative to the annualized rate of 15.30% over the past decade or the 13.80% increase over the past five years.
This dividend king managed to grow earnings from $3.45/share in 2013 to $8.92/share in 2022. The company is expected to generate $9.06/share in 2023.
The stock sells for 26.80 times forward earnings and yields 1.12%.
Relevant Articles:
- Seven Dividend Growth Stocks Rewarding Shareholders with Raises