As a shareholder, there are two ways to make profits from a stock.
The first way is when you sell your stock for a gain, after it has increased above your purchase price. The downside is that once you sell your stock, you will not be able to participate in any further upside. If you hold patiently however, you will experience a surge in net worth if the business succeeds.
The second way is when a stock you own distributes a dividend. A company typically distributes a dividend after carefully evaluating its business needs. If a business does not find enough good opportunities to deploy profits at high rates of return, then the rational thing to do is to distribute it to shareholders. Some businesses are able to both grow earnings and dividends.
There are over 530 businesses in the US, which have managed to increase dividends to shareholders for at least a decade. I try to monitor most of them, in an effort to review existing holdings, and uncover companies for further research.
My monitoring process involves different steps. I regularly screen the investable universe, using my criteria, before reviewing promising candidates. I also review some major news like filings and dividend increases as well for a narrower view of the universe.
For example, last week, there were 58 US companies that raised dividends. Of those companies, only 17 had managed to grow dividends for at least 10 years in a row. You can view this list below:
As part of my review, I look at the size of the increase and compare it to the five and ten year average. I also review the trends in earnings per share, in order to determine if the track record of dividend growth was from a solid base.
I like reviewing trends in payout ratios, in order to determine dividend safety. This of course is best done in conjunction with reviewing of earnings per share.
Last but not least, I also review valuation, in order to determine if a company is worth reviewing today for a potential acquisition.
You may like this old analysis of Eaton Corporation from 2015, on the steps I take to review a company.
Relevant Articles:
- 16 Dividend Growth Companies That Increased Dividends Last Week
- 25 Dividend Growth Stocks For Further Research
- 25 Companies Rewarding Shareholders With Raises