Six Dividend Growth Stocks Rewarding Shareholders With Raises

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

I usually focus on companies with a ten year streak of annual dividend increases, in an effort to weed out cyclical companies. It is not a small feat to raise dividends through a full economic cycle. Meeting this screen increases the chances of identifying quality companies for further research.

Of course, this is just a screen. I look at several data points in order to determine if a company should be put on the list for further research, or discarded. 

I look at growth in earnings per share over the past decade, because earnings per share are the fuel behind future dividend increases. 

I also look at the most recent dividend increase, and compare it to the 5 and 10 year averages.

Then I also review trends in dividend payout ratios. That's because I do not want dividend growth that happens solely from expansion in the payout ratio.

If a business is fundamentally sound, I would put it on my list for further research.

Last but not least, I also look at valuation. If a business is overvalued, I would determine a price that I would consider it and wait. If a business is fairly valued, I would research it first (assuming I haven't done that before".

Over the past week, there were three companies that raised dividends. These companies have also increased dividends for at least ten years in a row. The companies include:

Fifth Third Bancorp (FITB) operates as the bank holding company for Fifth Third Bank, National Association that engages in the provision of a range of financial products and services in the United States. It operates through three segments: Commercial Banking, Consumer and Small Business Banking, and Wealth and Asset Management.

The company increased quarterly dividends by 5.70% to $0.37/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has been able to grow dividends at an annualized rate of 11%.

Between 2014 and 2023, the company managed to grow earnings from $1.68/share to $3.23/share.

Fifth Third Bancorp is expected to earn $3.30/share. 

The stock sells for 12.70 times forward earnings and yields 3.52%.

First American Financial Corporation (FAF) provides financial services. It operates through Title Insurance and Services, and Home Warranty segments.

The company raised its quarterly dividend by 1.90% to $0.54/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has been able to grow dividends at an annualized rate of 15.90%. The rate of dividend growth has decelerated in the past 5 years however, as earnings per share have largely stagnated.

Between 2014 and 2023, the company's earnings went from $2.18/share to $2.08/share.

The company is expected to earn $3.88/share in 2024.

The stock sells for 17.10 times forward earnings and yields 3.25%.

New Jersey Resources Corporation (NJR) distributes natural gas. The company operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.

The company increased quarterly dividends by 7.10% to $0.45/share. This dividend champion has increased dividends every year for 29 years in a row. The company has managed to grow dividends at an annualized rate of 7% over the past decade.

Between 2014 and 2023, earnings went from $1.69/share to $2.73/share. 

The company is expected to earn $2.94/share in 2024.

The stock sells for 16.20 times forward earnings and yields 3.77%.

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 3.80% to $1.35/share.This is the 16th year of consecutive annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 3.90% over the past decade.

Between 2014 and 2023, earnings went from $4.76/share to $5.02/share. With that lack of earnings growth, it is no surprise that dividend growth is decelerating. Hopefully their investments can kickstart earnings growth over the next decade. 

The company is expected to earn $6.40/share in 2024.

The stock sells for 19.63 times forward earnings and yields 4.30%

Realty Income (O) is a real estate investment trust which owns over 15,450 real estate properties. 

Realty Income increased its monthly dividend by 0.20% to $0.2635/share. The new dividend is 2.92% higher than the dividend paid during the same time last year. This dividend aristocrat has increased annual dividends several times per year since going public in 1994. Over the past decade, the company has managed to boost dividends at an annualized rate of 3.60%.

Realty Income grew FFO/share from $2.58 in 2014 to $4.08 in 2023.

Realty Income is expected to generate $4.22/share in FFO in 2024.

The stock sells for 14.87 times forward FFO and yields 5.04%.

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 through Wealth, Corporate, Commercial and Institutional Banking; Consumer and Business Banking; Payment Services; and Treasury and Corporate Support segments.

The company increased quarterly dividends by 2% to $0.50/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has been able to grow dividends at an annualized rate of 8.50%.

Between 2014 and 2023, earnings went from $3.10/share to $3.27/share. With that lack of earnings growth, it is no surprise that dividend growth is decelerating.

U.S. Bancorp is expected to earn $3.85/share in 2024.

The stock sells for 11.60 times forward earnings and yields 4.48%.

Relevant Articles:

- Seven Dividend Growth Stocks Rewarding Shareholders With Raises

- Two Dividend Raises From Last Week

- Four Dividend Growth Stocks Raising Dividends Last Week

Intrinsic Value

Price is what you pay, value is what you get

- Warren Buffett 

The market for stocks goes above and below intrinsic value all the time.

Share prices are more volatile than cash flows. Share prices are more volatile than dividends too.

Even for large blue chip companies, share prices tend to be too volatile. This can be evident when reviewing P/E ratios over a given year for any company really.

For example, Apple (AAPL), has traded between a low of 164.08 and a high of 237.23 over the past 12 months. That's a very high amplitude of over 40% in a given year for one of the largest and most widely held companies on earth, which is followed by so many analysts.

Those cashflows and the intrinsic value of the business did not move by 40% in a single year. It's prices, driven by the fear and greed of market participants, which overshot on the upside and on the downside.

This presents you with some opportunity for the enterprising investor.

In general, it is probably better to buy shares in a good company when it is selling at a relatively cheap valuation.

However, most great companies tend to grow intrinsic value over time. That's because they are able to grow earnings and dividends over time.

Hence, the risk is that the investor who waits for too long to acquire such shares at a discount may end up missing out on a lot of returns. 

On the other hand, there is also the risk that the investor has unfortunate timing and ends up buying a little too high, after which he may have to experience some reversion to the mean over a period of a few years, which could end up testing their conviction.

A lot of value investing has tended to focus on buying low and selling high. I believe that once a good company is acquired at a good price, the job of the investor is to sit tight and let the power of compounding do the heavy lifting for them.

In the Words of Warren Buffett: “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

I believe that buying a great company at a decent price is a good strategy. In effect, it makes sense to acquire a great company at a P/E of 15, versus 20 or even 25. 

However, if you do not invest at a P/E of 25, and waited for a P/E of 15 or 20 that never comes, you may miss out on a ton of compounding. 

After all, the real wealth in investing comes from growth in earnings per share and dividends. Changes in valuation do tend to matter in the short-run ( 1 - 5 years), but their importance tends to diminish after a decade of investing.

As we have discussed before, investing is a game of trade-offs. The optimal path is to have the right margin of safety along those various trade-off paths. 

Investing is part art, part science. 

Two Dividend Raises From Last Week

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

I typically focus on companies that have managed to increase dividends for at least a decade. This helps me focus on those companies that have the durability of a business model that could potentially support decades of dividend increases into the future. Or so I have reasonably have come to believe.

This quick overview also showcases the type of review I do of individual companies, in order to determine if I want to put them on my list for further research or not.

Over the past week, there were two companies that both increased dividends and also have a ten year track record of consistent annual dividend increases under their belt. The companies include:

Brady Corporation (BRC) manufactures and supplies identification solutions (IDS) and workplace safety (WPS) products to identify and protect premises, products, and people in the United States and internationally. 

Brady raised quarterly dividends by 2.10% to $0.24/share. This dividend represents the 39th consecutive annual increase in dividends.  Over the past decade, the company has raised dividends at an annualized rate of 1.91%. The current dividend increase is roughly in line with the historical average for Brady.

The company managed to grow earnings from $1.08/share in 2015 to $4.08/share in 2024.

Analysts expect Brady Corporation to earn $4.49/share in 2025.

The stock sells for 16.10 times forward earnings and a dividend yield of  1.32%.

Verizon Communications Inc. (VZ) engages in the provision of communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business).

Verizon raised its quarterly dividends by 1.90% to $0.6775/share. This is the 18th consecutive year Verizon’s Board has approved a quarterly dividend increase. Over the past decade, the company has managed to grow dividends at an annualized rate of 2.37%. The current dividend increase is roughly in line with the historical average for Verizon.

“Our strong focus on three key pillars – wireless service revenue growth, adjusted EBITDA expansion, and free cash flow generation – has once again put the Board in a position to raise the dividend," said Chairman and CEO Hans Vestberg. "This unwavering commitment to our strategic priorities, combined with our consistently disciplined financial management and our dedication to serving our customers with the best in mobility and broadband, continue to position us well for future growth."

The company managed to grow earnings from $2.42/share in 2014 to $2.76/share in 2023.

Analysts expect Verizon to earn $4.56/share in 2024.

The stock sells for 9 times forward earnings and a dividend yield of  6.58%.

Relevant Articles:

- Four Dividend Growth Stocks Raising Dividends Last Week

- Seven Dividend Growth Stocks Rewarding Shareholders With Raises

- Five Companies Confidently Raising Dividends to Shareholders

- 21 Dividend Growth Stocks Raising Dividends Last Week

Peter Lynch on Big Winners and Patience

The companies that do well, look out five, six, seven years, and some decisions they make may not be the right thing for the next year.”

Peter Lynch

The typical big winner generally takes three to ten years or more to play out.

I was reminded of this quote by Peter Lynch as I was reviewing the results from Hubbell (HUBB)

You can see that the company has basically more than tripled in price over the past decade

However, most of the gains in the share price occured in the past four years.

The first six years were basically a slow grind going nowhere, whipsawing the weak hands as the price went up and down, up and down...

That price action basically wears out many. But it's a good reminder that share prices do not go up in a linear fashion. You need to have the patience to hold on through the turbulence.

But you can only be patient if you have done the work and you can afford to invest with a long-term mindset. A long-term mindset is anything over 5 to 10 years. 

If you were overleveraged, chances are you wouldn't have stuck to the compay. If you constantly compared the results to other investments, you wouldn't have stuck with the company. If you invested with money you actually needed in the short run, you wouldn't have stuck with the company either. If you had a concentrated position in this security, you wouldn't have stuck to it either.

This is where we also have the Buffett quote that the market is not there to guide you, but to serve you.

In terms of results, the company grew EPS from $5.52 in 2014 to $14.14 in 2023. Hubbell is expected to earn $16.39/share in 2024.

Growth in earnings per share was not linear either, further questioning the patience in investors.

Yet, patience was the required ingredient for investors in Hubbell over the past decade. Those who held on for 6 years, with little to show for it, have been rewarded in the past 4 years. Basically most of the share price gains/returns occured in the past 4 years.

This is where being a dividend growth investor is helpful. When you are paid to hold, you can afford to be patient. It's even easier to hold if you are paid a rising stream of dividends every single year. You focus on the fundamentals, and see that this rising dividend is fueled by a rising earnings per share (fundamentals).

In 2014, shareholders collected $2.06 for each share they owned. That amount kept climbing every single year and they collected $4.58/share in 2023.  They are on track to collect almost $5/share in dividends this year, assuming a dividend increase in October that is in line with prior year's.

In terms of valuation, the stock sold at roughly 21 times forward earnings in 2014. It sells for roughly 24 times forward earnings today. 

So most of the total returns came from fundamentals - rising earnings per share and reinvested dividends.

Total returns were 365% since January 2014. 

If you focus only on share price increases that's only 267%. 

As we know, returns are a function of:

1. Dividends

2. EPS Growth

3. Change in valuation 

I believe that focus on 1 helps me focus on 2. I also believe that 3 matters the least in the long run, though it produces a lot of noise in the short run. Albeit for an intelligent investor, taking advantage of Mr Market can be beneficial. In the long run, ignoring it may be a good policy overall however.

Now we also learned that returns are not linear, and do not happen on a neat predictable schedule.

It's important to be patient, if you want to stand a chance of making money as an investor.

This example with Hubbell illustrates that Peter Lynch quote perfectly.

The typical big winner generally takes three to ten years or more to play out.

I will end this post with another Peter Lynch quote on holding on to companeis with stagnant share price, where the fundamentals are improving (and valuation is getting cheaper)

“If a stock has gone sideways for a couple of years, and the fundamentals are decent, and you can find something new that's positive in the company, then if you're wrong, the stock will probably continue to go sideways, and you won't lose a lot of money. But if you're right, that stock is going north.”

Peter Lynch

These are just some random thoughts I have as I am doing some random reviews and the folgers is about to kick in. They may make it into an article/blog post somewhere down the line....

Relevant Articles:

- Peter Lynch Investing Quotes

- Peter Lynch Articles For Worth Magazine

- Peter Lynch on Dividend Growth Investing

- 25 Golden Rules for Investing by Peter Lynch

- Peter Lynch Portfolio Holdings at the Fidelity Magellan Fund

Mistakes of Omission

According to Buffett, his biggest mistakes by far have been mistakes of omission. For example, in a talk founder Bill Gates in 1998 at the University of Washington Business School, Buffett explained:

"I've made all kinds of bad decisions that have cost us billions of dollars. They've been mistakes of omission rather than commission. I don't worry about not buying Microsoft, though, because I didn't understand that business. And I didn't understand Intel (INTC). But there are businesses that I did understand--Fannie Mae was one that was within my circle of competence. I made a decision to buy it, and I just didn't execute. We would've made many billions of dollars. But we didn't do it."

These mistakes don't show up in Berkshire's investment returns, but they are a genuine opportunity cost for the group and its investors.

Buffett's right-hand man and vice-chairman of Berkshire, Charlie Munger, elaborated on this topic at the group's 2001 annual shareholder meeting, saying, "The mistakes that have been most extreme in Berkshire's history are mistakes of omission. They don't show up in our figures. They show up in opportunity costs."

I tend to review past decisions, which is helpful in my improvement as an investor. As an investor, some of my biggest mistakes have been mistakes of omission as well. 

For example, I have missed out on investing in companies that I understood, and were available at a good price. But I never quite pulled the trigger.

One example includes Microsoft (MSFT), which was available at a silly low valuation in 2009, 2011 and 2012 and 2013. I didn’t pull the trigger, despite spending my days in Microsoft Word and Microsoft Excel and Microsoft PowerPoint. And I still do. The fundamentals were solid, but the reason I didn’t invest was fear of change. I now think those fears were overblown, but didn’t think so then. Either way, I missed out on a 10 bagger.

Another example includes Intel (INTC), which was also available at a silly low valuation at thte time. I also didn’t pull the trigger due to fear of change. I didn’t understand it as much I wanted. In hindsight, missing out on Intel was fine, because while the company did work  well initially, it has now not done as well. However, the issue is that my initial investment would have been limited to the amount I invested. Which would have limited my potential loss and exposure. But this thinking that prevented me from investing in Intel also prevented me from investing in Microsoft. Microsoft was a 10 bagger, and would have paid for 10 intels that went completely belly up. 

With investing, the risk of loss is limited to the amount I invested in. But the upside is unlimited. What matters is how much you make when you are right, and how much you lose when you are wrong. That doesn’t mean to blundly take risks of course. But this example really shapes my view that I should have taken more risks, due to the assymetrical nature or risk/reward. Even if I was wrong 9 out of 10 times, which is way too conservative, one Microsoft would have still overcome the 9 Intels and resulted in an overall net profit. The important thing of course would have been to identify it and buy it in the first place.

Note that in the case of Microsoft I did end up pulling the trigger a few years ago. While the stock price was up and valuation was more expensive than a decade ago, it was still reasonable at the time. Just because a stock is at a 52 week high does not necessarily mean that the stock is overvalued. 

I have also missed out on investing in companies within my investable universe, mostly because I had stringent entry criteria. 

In addition, a stock selling at 25 times earnings and a "low" dividend yield of 1.80% that can grow those earnings and dividends can turn out to be "cheaper" than a stock selling at 14 times earnings and a dividend yield of 3.50% - 4%. Especially if the higher yielding stock fails to grow earnings per share.

I am basically comparing investing in Microsoft in 2017 versus investing in Pfizer or Verizon back then.

Investing is all about trade-offs. I often ask myself if I am being disciplined by having a strict entry criteria or whether I am being stubborn. An overview of my past decisions, coupled with studies of the old manuals of dividend achievers has shown me that the highest future yields on cost tended to come from companies with lower current yields. Which is why I eventually removed my entry criteria. But it took a lot of years to get there. I have also been relaxing my P/E ratio criteria as well.

Again, investing is all about trade-offs. On one hand you could say that I am being flexible in adapting to the real world environment. On the other hand however you could say that I am perhaps succumbing to Fear of Missing Out (FOMO). Just like everything else in life, it depends. It’s all a fine balance between two extremes that we need to walk on, day in and day out.

I mentioned above that I have relaxed my entry criteria. I do try to take into consideration the trade-off between dividend yield and dividend growth, and try to estimate the likelihood that future earnings and dividend growth can have a long runway. It’s a lot of guesswork, but guess what, a lot of investing is about guesstimates and probabilities, while estimating payoffs and frequencies of those payoffs as well.

The end result is trying to learn and improve.

For example, I learned a ton by studying other investors and investment strategies. A common denominator is casting a net on an investable universe, and then patiently holding tight for a long period of time. This patience allows for the best companies to compound uninterrupted, and rise to the top. All of this “patient inactivity” allows the power of compounding to do its heavy lifting. The most important rule is not to interrupt the power of compounding by doing something silly like selling too early or worse, not buying in the first place.

For example, I have been reviewing the list of Dividend Aristocrats for as long as I have been writing about Dividend Growth Investing on this blog.

I once compiled the returns of the 2011 Dividend Aristocrats List. I then traced to see the returns of each company over the next decade or so. I have done that for the 2013 list as well..

I owned a lot of the companies listed there. But I also had a few companies I never really invested in, for one reason or another. Mostly “reasons”. 

I for example never invested in Cintas (CTAS). Cintas is the best performing dividend aristocrat ove the past decade. The stock was never really that expensive in the first place, although it is expensive today.

The irony is that the stock is not a company that is mentioned by other dividend investors. Nobody talked about it.

Many missed it.

Perhaps that’s because it had a small yield? However, the subsequent growth in earnings per share led to high dividend growth, which has translated into high yields on cost for those investors from say a decade or so ago. Much higher than the higher yields that never grew by much, which many seem to be obsessing over.

Either way, it just shows that one never really knows for sure. Perhaps casting a wider net of opportunities may be a better idea than being too restrictive. That’s because those tails may drive the distribution of statistical outcomes. Even if the expectation is that most things would more or less stay the same, it may be worth it to position yourself for surprises, just in case.

One of the most eye opening experiences has been studying index fund returns. Index funds never really take into consideration valuation. And they tend to weight portfolio companies based on market capitalization. And in general, they do not really make a lot of decisions. Yet, they do really well, relative to other investors, despite all of that. Their success is due to the fact that they do not force their opinions in general, but rather follow what’s working and stick with it. They basically cast a wide net over opportunities, giving them the chance of owning the next winner. Then they basically stick to owning that company, forever. A lot of those companies fail, but a few succeed. Those successes tend to really outshine the losers, and still result in the overall performance of 10%/year for the portfolio (at least historically). While some companies end up being overvalued and losing money, a few end up being correctly valued, even if they seem so at the time. Identifying those future winners, and sticking to those companies, through thick or thin, is very difficult. Yet, index funds succeed in that. 

It's very hard to predict the future, and profit from it. So casting a wide net, and sticking to investments seems like a good process. My opinions, feelings, and attitude towards a company may actually turn out to be impediments to buying right and sitting tight. It’s something I often think about..

Today we discussed mistakes of ommission, which can be the costly mistake of not pulling the trigger on an opportunity. We also reiterated the importance of auditing your investing decisions, in order to improve as an investor over time. We have a lot of ignorance, and to succeed as investors we need to devise a plan and strategy to remove it bit by bit over time, in order to improve and succeed as investors.

I will conclude this post by the following quote from Charlie Munger, who was the right hand man of Warren Buffett.

“The main contribution of [buying See’s Candies] was ignorance removal. If we weren’t good at removing ignorance, we’d be nothing today. We were pretty damn stupid when we bought See’s – just a little less stupid enough to buy it. The best things about Berkshire is that we have removed a lot of ignorance. The nice thing is we still have a lot more ignorance left. Another trick is scrambling out of your mistakes, which is enormously useful. We have a sure to fail department store. A trading stamp business sure to fold and a textile mill. Out of that comes Berkshire. Think about how we would have done if we had a better start.” “See’s Candies was acquired at a premium over book (value) and it worked. Hochschild,Kohn, the department store chain (in Baltimore), was bought at a discount from book and liquidating value. It didn’t work. Those two things together helped shift our thinking to the idea of paying higher prices for better businesses.”

Relevant Articles:

- The Best Performing Dividend Aristocrat Over The Past Decade

- Audit your investment decisions

- Investing Lessons Learned From 15 Years of Writing

- Investing in the Dividend Aristocrats from 2011

- Investing in the Dividend Aristocrats from 2013

Four Dividend Growth Stocks Raising Dividends Last Week

I review dividend increases weekly, as part of my monitoring process. This exercise helps to keep me informed on developments from companies I own and companies I may be interested in.

I typically focus my attention on those companies that have increased dividends annualy for at least ten years in a row. 

There were four companies that raised dividends last week, which also have a ten year track record of annual dividend increases as well. The companies include:

Capital City Bank Group, Inc. (CCBG) operates as the financial holding company for Capital City Bank that provides a range of banking- related services to individual and corporate clients.

Capital City Bank raised quarterly dividends by 9.50% to $0.23/share. This is the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 35.26%. That's mostly because it started out with a small dividend and a low payout ratio a decade or so ago after suspending dividends after the financial crisis.

The company managed to grow earnings from $0.53/share in 2014 to $3.08/share in 2023.

The company is expected to earn $3.09/share in 2024.

The stock sells for 11.20 times forward earnings and yields 2.67%.

Ingredion Incorporated (INGR) manufactures and sells sweeteners, starches, nutrition ingredients, and biomaterial solutions derived from wet milling and processing corn, and other starch-based materials to a range of industries in North America, South America, the Asia Pacific, Europe, the Middle East, and Africa.

Ingredion raised quarterly dividends by 2.60% to $0.80/share. This is the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company managed to grow dividends at an annualized rate of 7.59%.

The company managed to grow earnings from $4.82/share in 2014 to $9.74/share in 2023.

The company is expected to earn $9.94/share in 2024.

The stock sells for 13.50 times forward earnings and yields 2.38%.

Lam Research Corporation (LRCX) designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits.

Lam Research raised quarterly dividends by 15% to $2.30/share. This is the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past five years the company has managed to grow dividends at an annualized rate of 12.70%.

The company managed to grow earnings from $4.11/share in 2015 to $29.13/share in 2024.

The company is expected to earn $35.84/share in 2025.

The stock sells for 22.90 times forward earnings and yields 1.12%.

Peoples Ltd. (PPLL) operates as the holding company for PS Bank that engages in the provision of various financial services to individuals, small businesses, and corporate customers in Pennsylvania, the United States.

Peoples raised quarterly dividends by 1.60% to $0.63/share. This is the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, the comapny has managed to grow dividends at an annualized rate of 9.80%.

The company managed to grow earnings from $3.63/share in 2014 to $8.93/share in 2023.

The stock sells for 8.90 times earnings and yields 3.85%.