Ten Dividend Growth Stocks Raising Dividends

Welcome to my latest weekly review of dividend increases. 

As part of my monitoring process, I review dividend increases that occured over the past week. 

I then narrow my attention down to the companies which both raised dividends last week AND have at least a ten year track record of annual dividend increases under their belt.

A company that can grow dividends for many years in a row is usually one with strong competitive advantages, and ability to reinvest and high rates of return. Those types of quality companies can manage to grow the business, while also generating a rising stream of cashflows to share with shareholderds. 

Hence, I tend to keep a close look at companies that have increased dividends for many years in a row. Reviewing recent dividend increases is an extension of that process.

This of course is just one step of the review and monitoring process that I follow. However, it is also good snapshot of the the process I use to quickly decide if a company is worth putting on the list for further research, or discarded.

I tend to look for dividend increases, which are supported by growth in earnings per share. Without that, future dividend growth will be limited.

I also like to review changes in dividend growth, relative to the historical average, to get clues as to where the winds are blowing. Dividend increases are a good signal from managements, which are keenly aware of the competitive dynamics in their industries. As a result, those dividend increases represent a good signaling mechanism as to howt those management teams are expecting the business to perform in the near term.

Last but not least, it is important to determine whether the valuation is attractive or not. This should usually be done at the end. Valuation only matters of course if the business is determined to be of sound quality fundamentally speaking, in the previous steps.

Over the past week, there were ten companies that both raised dividends to shareholders AND also have a minimum of ten year track record of annual dividend increases. You can see the companies, and my review of them below:

Agilent Technologies, Inc. (A) provides application focused solutions to the life sciences, diagnostics, and applied chemical markets worldwide. The company operates in three segments: Life Sciences and Applied Markets, Diagnostics and Genomics, and Agilent CrossLab.

The company increased quarterly dividends by 5.10% to $0.248/share. This is the 12th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.60% over the past five years.

Between 2014 and 2023, the company managed to grow earnings from $1.65/share to $4.22/share.

The company is expected to earn $5.24/share in 2024.

The stock sells for 25.55 times forward earnings and yields 0.71%.

Assurant, Inc. (AIZ) provides business services that supports, protects, and connects consumer purchases in North America, Latin America, Europe, and the Asia Pacific. The company operates through two segments: Global Lifestyle and Global Housing.

The company raised quarterly dividends by 11.10% to $0.80/share. This is the 20th consecutive year of dividend increases for this dividend achiever. Over the past five years, the company has managed to grow dividends at an annualized rate of 4.30%.

Assurant managed to grow earnings from $6.52/share in 2014 to $12.02/share in 2023.

The company is expected to earn $15.39/share in 2024.

The stock sells for 14.70 times forward earnings and yields 1.41%.

Brown-Forman Corporation (BF.A)(BF.B) manufactures, distills, bottles, imports, exports, markets, and sells various alcoholic beverages.

The company raised dividends by 4% to $0.2265/share. This is the 41st consecutive annual dividend increase for this dividend aristocrat. The 5 year annualized dividend growth rate is at 5.40%.

Brown-Forman managed to grow earnings from $1.29/share in 2015 to $2.15/share in 2024. 

The company is expected to earn $1.78/share in 2025.

The stock sells for 23.26 times forward earnings and yields 2.19%.

Dolby Laboratories, Inc. (DLB) engages in the design and manufacture of audio, imaging, accessibility, and other hardware and software solutions primarily for application in the television, broadcast, and live entertainment industries in the United States and internationally.

The company increased its quarterly dividend by 10% to 0.33/share. This is the tenth year of consecutive annual dividend increases for this newly minted dividend achiever.  The company has a 5 year annualized dividend growth rate of 10.60%.

Between 2015 and 2024, the company grew earnings from $1.77/share to $2.74/share.

The company is expected to earn $4.06/share in 2025.

The stock sells for 19.80 times forward earnings and yields 1.64%.

Matthews International Corporation (MATW) provides brand solutions, memorialization products, and industrial technologies worldwide. It operates through three segments: Memorialization, Industrial Technologies, and SGK Brand Solutions.

The company raised quarterly dividends by 4.20% to $0.25/share. This represents the 31st consecutive annual dividend increase since this dividend champion became a publicly-traded company. OVer the past five years, annualized dividend growth has remained at 3.80%.

Between 2015 and 2024, the company's earnings went from $1.93/share to a negative $1.93/share (a loss).

The company is expected to earn $1.72/share in 2024. 

The stock sells for 18 times forward earnings and yields 3.24%.

Merck & Co., Inc. (MRK) operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.

The company raised its quarterly dividend by 5.20% to $0.81/share. This is the 13th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends by 8.70%/year over the past 5 years.

Merck is expected to generate $7.74/share in 2024. The company earned $4.12/share in 2014 for reference. Consistent one-time items require more intense review of annual EPS figures for this company.

The stock sells for 12.80 times forward earnings and yields 3.26%.

McCormick & Company, Incorporated (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. It operates in two segments, Consumer and Flavor Solutions. 

The company hiked its quarterly dividend by 7.10% to $0.45/share. This marks the 39th consecutive dividend increase for this dividend aristocrat. Over the past five years, it has managed to grow dividends at an annualized rate of 8.40%.

McCormick managed to grow earnings from $1.69/share in 2014 to $2.54/share in 2023.

The company is expected to generate $2.92/share in 2024.

The stock sells for 26.60 times forward earnings and yields 2.32%.

Royal Gold, Inc. (RGLD) acquires and manages precious metal streams, royalties, and related interests. 

The company raised quarterly dividends by 12.50% to $0.45/share. This is the 23rd consecutive annual dividend increase for this dividend achiever. Over the past five years, the company has managed to grow dividends at an annualized rate of 8.40%.

Between 2015 and 2024, the company managed to grow earnings from $0.80/share to $3.65/share.

The company is expected to earn $5.12/share in 2024.

The stock sells for 29.10 times forward earnings and yields 1.21%.

United Bancorp, Inc. (UBCP) operates as the bank holding company for Unified Bank that provides commercial and retail banking services in Ohio. 

The bank approved a 1.40% raise in its quarterly dividend to $0.18/share. The new rate is 5.90% over the dividend paid during the same time last year. That's because the bank has tended to to raise dividends every quarter since 2021, by a little bit, which tends to accumulate nicely. 

Between 2014 and 2023, the company grew earnings from $0.54/share to $1.57/share. 

The company is expected to earn $1.25/share in 2024.

The stock sells for 10.60 times forward earnings and yields 5.45%.

WesBanco, Inc. (WSBC) operates as the bank holding company for WesBanco Bank, Inc. that provides retail banking, corporate banking, personal and corporate trust, brokerage, mortgage banking, and insurance services to individuals and businesses in the United States. The company operates through two segments, Community Banking, and Trust and Investment Services. 

The company increased quarterly dividends by 2.80% to $0.37/share. This is the 14th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 4.40%/year over the past five years.

Between 2014 and 2023, the company's earnings went from $2.39/share to $2.51/share.

The company is expected to earn $2.15/share in 2024.

The stock sells for 17 times forward earnings and yields 4.06%.

Relevant Articles:

- Seven Dividend Growth Companies Increase Dividends Last Week

- 17 Dividend Growth Stocks Rewarding Owners With A Raise

- Twelve Dividend Growth Stocks Rewarding Shareholders With Raises

- 26 Dividend Growth Stocks Raising Dividends Last Week

Seven Dividend Growth Companies Increase Dividends Last Week

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me review existing holdings for dividend increases and financial updates. It also helps me review potential candidates for further research.

This exercise also helps me review the pulse of dividend markets in the US, and also keeps me in fighting shape. When I review a lot of companies, and their fundamentals, I feed myself more data to potentially uncover more patterns and setup for further review down the road. All knowledge compounds over time, just like compound interest after all.

I like to look at several items, when doing those quick reviews. I like to look at the most recent dividend increase, and then compare it to the 5 or 10 year average of dividend growth. In general, I like consistency, but note if there is any deceleration of growth, which is a potential red flag.

I also like to review growth in earnings per share over the past decade, because rising EPS is the fuel behind future dividend increases. I do not want to see generally flat earnings per share, because this shows me that future dividend growth will be limited. 

Last but not least, I also like to review valuation. It's helpful to look at P/E ratios alongside past growth, in order to get a good gauge as to whether a company is fairly valued or expensive. That's one step that has to be done at the end, only after one has narrowed any list down to promising candidates based on fundamentals. 

Over the past decade, there were 23 companies that raised dividends. Only seven of them have managed to raise dividends for at least a decade. The companeis include:

Farmers & Merchants Bancorp (FMCB) operates as the bank holding company for Farmers & Merchants Bank of Central California that provides various banking services to businesses and individuals. 

The company raised its semi-annual dividend by 5.70% to $9.30/share. Farmers & Merchants Bancorp is a dividend king which has increased dividends for 59 consecutive years. The company has managed to grow dividend at a rate of 3.60%/year over the past 5 years.

The company grew earnings from $32.64/share in 2014 to $116/61/share in 2023.

The stock sells for 8.40 times earnings and yields 1.90%

First National Corporation (FXNC) operates as the bank holding company for First Bank that provides various commercial banking services to small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations in Virginia.

The company raised quarterly dividends by 3.30% to $0.155/share.This is the 10th consecutive annual dividend increase for this newly minted dividend achiever. The company has managed to grow dividends at an annualized rate of 24.60% over the past five years. 

Between 2014 and 2023, the company's earnings went from $1.32/share to $1.54/share. The company is expected to earn $0.69/share in 2024.

The stock sells for 34 times forward earnings and yields 2.60%.  

Griffon Corporation (GFF) provides consumer and professional, and home and building products in the United States, Europe, Canada, Australia, and internationally. The company operates through two segments: Home and Building Products, and Consumer and Professional Products. 

The company raised quarterly dividends by 20% to $0.18/share. This is the 13th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 12.10% over the past five years.

Between 2015 and 2024, the company's earnings went from $0.77/share to $4.41/share. The company is expected to earn $5.55/share in 2025.

The stock sells for 13.30 times forward earnings and yields 1%

Motorola Solutions, Inc. (MSI) provides public safety and enterprise security solutions in the United States, the United Kingdom, Canada, and internationally. The company operates in two segments, Products and Systems Integration, and Software and Services.

The company raised its quarterly dividends by 11% to $1.09/share. This marks the 13th consecutive year of annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 11.10% over the past five years.

Between 2014 and 2023, the company's earnings went from $5.29/share to $10.23/share. The company is expected to earn $13.68/share in 2024.

The stock sells for 35.73 times forward earnings and yields 0.90%.  

NIKE, Inc. (NKE) engages in the design, development, marketing, and sale of athletic footwear, apparel, equipment, accessories, and services worldwide. 

The company raised quarterly dividends by 8.10% to $0.40/share. This marks the 23rd consecutive year of annual dividend increases for this dividend achiever. The company has managed to grow dividends at an annualized rate of 11.20% over the past five years.

Between 2015 and 2024, the company's earnings went from $1.90/share to $3.76/share. The company is expected to earn $2.81/share in 2025.

The stock sells for 27 times forward earnings and yields 2.10%.  

Spire Inc. (SR) engages in the purchase, retail distribution, and sale of natural gas to residential, commercial, industrial, and other end-users of natural gas in the United States. The company operates through three segments: Gas Utility, Gas Marketing, and Midstream.

The company increased quarterly dividends by 4% to $0.785/share. 2025 will be the 22nd consecutive year of increasing the annual dividend for this dividend achiever.  The company has managed to grow dividends at an annualized rate of 5.10% over the past five years.

Between 2014 and 2023, the company's earnings went from $2.35/share to $3.86/share. The company is expected to earn $4.20/share in 2025.

The stock sells for 15.95 times forward earnings and yields 4.70%.  

Tyson Foods, Inc. (TSN) operates as a food company worldwide. It operates through four segments: Beef, Pork, Chicken, and Prepared Foods. 

The company raised quarterly dividends by 2% to $0.50/share. This is the 13th consecutive annual dividend increase for this dividend achiever. The company has managed to grow dividends at an annualized rate of 8.60% over the past five years.

Between 2015 and 2024, Tyson Foods earnings went from $3.01/share to $2.26/share. The company is expected to earn $3.47/share in 2025.

The stock sells for 18.50 times forward earnings and yields 3.10%

The Quality Compounder Boom

As a Dividend Growth Investor, my investable universe is the group of companies that have managed to increase annual dividends for at least 10 years in a row.

Once I have my investable universe of 500 or so companies, I spend some time narrowing the list down by:

1. Requiring growth in earnings per share over the past decade

2. Focusing on companies that have more than a token dividend growth

3. Focusing on companies with competitive advantages and recurring revenue streams

For a while now, I've scoured my lists, and ended up with a few companies for research, that seem like great businesses to own. These companies have every characteristic that would qualify them as a quality business. They have the moats, the competitive advantages, the dominant position in their niche, the growth in earnings per share, the high return on investment, etc etc

Unfortunately, once I get to the valuation part, I end up having to put them on hold and not buy them.

That's because a lot of these companies seem wildly overvalued.

In the short run, the market is a voting machine. 

In the long run, it is a weighing maching

- Warren Buffett

As an investor, your returns are a function of:

1. Dividends

2. Earnings per share growth

3. Changes in valuations

Over the long run, earnings growth and reinvested dividends account for over 99% of total returns. Changes in valuation account for pretty much zero of historical total returns on equities.

In the short-run however, changes in valuation  affect expected returns.

For example, let's revisit the lessons we learned from this post Microsoft During the lost decade

Microsoft delivered poor returns between 1999 and 2012, despite the business growing FCF/share from $1.15 to $3.45. The reason was because the stock was overvaluaed as it was selling at 51 times FCF/share in 1999. By 2012 the valuation went to another extreme, when the stock was selling for 8 times FCF/share.

Investors who bought Microsoft $MSFT stock $58.38/share at the end of 1999 were sitting at an unrealized loss by the end of 2012, when the stock declined by 54% to $26.71/share.

Fast forward to 2024, Microsoft now generates $9.97/share in FCF (Free Cash Flow). However, it sells for 42 times FCF/share. The stock has gone up from $26.71 in 2012 to $426 today.

You can see that the valuation can expand and contract in the short run, which can cause share prices to move much more than fundamentals. Even if fundamentals are pretty growing at a nice step forward, like a ladder. 

I am all for investing in quality companies, that will compound earnings, dividends, intrinsic value over time. However, I am not a fan of overpaying wildly for even the best business in the world.

When I overpay, I am essentially paying for all the growth in the immediate future (e.g. next 5- 10 years).. This leaves me with little in forward expected returns for quite some time.  Only if I could hold for 20 years or so would I be likely to generate a decent amount in returns. Provided of course that those businesses would indeed be around in 20 years, still have strong competitive positions and would thrive in the process as well.

The downside is that when I overpay, I have a lower margin of safety. When a business is priced for perfection, even the smallest dent in the overconfidence can produce negative spiraling effects.

Historically, we've had situations in the US when good businesses were sold at highly inflated valuations. That happened with the Nifty Fifty in 1972 for example. You may enjoy this article refresher on the topic: The Nifty Fifty: Valuing Growth Stocks

Back in the early 1970s, there was a group of companies which are referred to as “The Nifty Fifty” in the US. These were companies which were expected to grow earnings forever, by taking advantage of trends in demographics and the economy of the future decades. The stocks were often described as "one-decision", as they were viewed as extremely stable, even over long periods of time.

The most common characteristic by the constituents were solid earnings growth for which these stocks were assigned extraordinary high price–earnings ratios. 

A P/E of forty times earnings, far above the long-term market average, was common for these one-directional glamor stocks.

By 1973 investors lost interest in the stock market, and by the bottom in 1974 lots of the Nifty-Fifty stocks were down by 70 – 80 – 90% from their highs just a couple of years earlier. Many of the companies did not deliver price increases for a while, with the majority of their returns coming from dividends in the first decade since the top. Some of these Nifty-Fifty companies ended up failing outright, while a few others ended up becoming successful beyond their original investors dreams.

In reality, an investor who bought a portfolio of these companies and held through thick and thin for the next 30 years did well in the end.  The truth however is that few investors probably held on through the carnage long enough to not only realize a profit, but also come out ahead as well.

Another historical situation where we had wildly excessive valuations occured during the dot-com bubble in 1999 - 2000. There were a lot of promising technology companies, which were destined to rule the world. Those companies sold at high valuations, because investors were overpaying for expected growth that way many years into the future. 

Investors in those companies lost money in the first decade. Investors did make money in Oracle and Qualcomm, provided they were willing to sit patiently through gut-wrenching 80% declines, and holding for 15 - 20 years before breaking event.

You may like my review of how Cisco Systems (CSCO) investors from the dot-com bubble did over the past 20 - 25 years here: Cisco Systems (CSCO) : Lessons from the Dot-Com Bubble

You may also enjoy my article on how the investors in the companies in Nasdaq 100 from 2000 did over the next 20 years: Investing in Nasdaq 100 in 2000

Right now we have several companies in the dividend growth investing universe, which have been selling at very high valuations. Those valuations have also been increasing as well.

While the businesses themselves seem to be doing well, and would likely continue to do so, investors today are overpaying for the stability and growth of the future. This could impact near-term returns for them over the next 5 - 10years, mostly because these securities are priced based on growth that is not going to occur until 10 years from. These securities are thus priced for perfection.

Any hiccup along the line, could result in a double whammy of lower valuation ratios and P/E shrinkage.

I will illustrate this example of the risks and possible paths using a favorite company - Costco.

For example, Costco sells for 52.50 times forward earnings today. The stock is at $933/share. The company is expected to earn $17.80/share in 2025. It yields 0.50%.

The company earned $5.41/share in 2015 for reference. The stock sold at around $140/share back then. That was equivalent to almost 26 times earnings.

The company has an amazing business model, and has managed to grow Earnings Per Share consistently in an upwards fashion for years:

If the valuation had stayed at 26 times earnings, Costco stock would be at $460 today. The increase in the valuation from 26 to 52 times earnings resulted in the resulting growth in the share price.

Analysts expect Costco to grow earnings per share to $40/share in 2034. Let's assume for a moment that this happens indeed, due to strong membership growth, recurring earnings streams etc. This means that Costco is selling for 23 times forward earnings for 2034.

If Costco stays at the same P/E ratio of 52 in 2034, the stock would be at $2,100 in 2034. You'd more than double your money, plus you'd get the added benefit of a percent or two of dividend reinvestment over the course of the next decade. I highly doubt the P/E ratio would be at 52 in 2034 however. I believe the major risk in investing today in Costco is not that the business fails, but that the business valuation is revalued to a lower P/E ratio. Not sure what would trigger that revaluation, but I highly doubt this could go on forever.

However, if the stock reverts back to the P/E ratio of 26 from 10 years ago, the price of Costco stock would be $1,040 in 2034. This is roughly a 10% total gain in the share price, over a period of ten years. While dividends would likely grow, and there would be special dividends in place, that could probably account for most of any returns generated over the next decade. 

With the annual dividend at $4.64/share today, a doubling in earnings per share would translate into an annual dividend of roughly $10/share in 2034.

It is very much possible that even if growth materializes, that the P/E ratio shrinks to a level below 26. In that case, investors in Costco who overpay for the stock today, would suffer losses, even if they hold for a decade. Any profits they make would be from the growth in the business in years after 2034. That's really long-term investing. Remember, the goal is to make a profit.

It is also possible however that earnings expectations for Costco today are not enthusiastic enough. If Costco actually earns say $80/share in 2034 ( I pulled this number out of a hat to illustrate a principle I am teaching here). In that case, assuming a P/E of 26 in 2024, that stock would likely sell for $2,080/share. That would mean that anyone buying today would double their money. Plus, you'd get the added bonus of reinvesting dividends, which would likely grow from $4.64/share today to perhaps $20/share by 2034 (at the optimistic future EPS figure of $80 in 2034).

Perhaps, I should not discount the possibility that Costco's P/E ratio would increase from here. I find it very hard to believe that Costco's P/E ratio would increase from an already high 52 times earnings. And then also stay there too.

These are just a couple of thoughts I have about the possible outcomes for Costco. I use them as an example of what my thinking goes.

Perhaps my thinking in terms of decision trees, outcomes, and paths is inspired by this chart from Tim Urban

There are several other companies that seem to be following a similar pattern of looking overvalued today. I believe they have decent businesses, that I would likely be willing to buy into at the right price. You can view this as my (non-exhaustive) Holiday Shopping list.

Cintas Corporation (CTAS) sells for 52.76 times forward earnings and yields 0.70%. The company has a 10 year annualized dividend growth rate of 22%.

Costco (CTAS) sells for 52.50 times forward earnings and yields 0.50%. The company has a 10 year annualized dividend growth rate of 12.60%.

Intuit (INTU) sells for 37 times forward earnings and yields 0.60%. The company has a 10 year annualized dividend growth rate of 16.40%.

Eli Lilly (LLY) sells for 61.60 times forward earnings and yields 0.65%. The company has a 10 year annualized dividend growth rate of 9.90%.

MSCI Inc (MSCI) sells for 40.70 times forward earnings and yields 1.05%. The company has a 5 year annualized dividend growth rate of 20.60%.

Moody's (MCO) sells for 40 times forward earnings and yields 0.71%. The company has a 10 year annualized dividend growth rate of 11.80%.

WD-40 (WDFC) sells for 53.40 times forward earnings and yields 1.23%. The company has a 10 year annualized dividend growth rate of 10%.

Note, this is just a representative sample. There are quite a few more such quality companies, selling at very high valuations.

Conclusion:

I hope you enjoyed this article. It got a little long, and wordy at the end. If you finished it in one sitting, congratulations and thank you for reading. Note that this is not a prediction that these companies would decline in price. It's merely stating that a lot of these companies are overvalued today and most likely, considering all possible paths, shareholders buying today are less likely to make money on them over the next decade or so.

To summarize possible outcomes:

It is quite possible that these companies continue enjoying inflated valuations from here on. 

It is somewhat possible that fundamentals do much better than expected, which would then mean that valuations today "make sense".

However, it is also possible that these companies continue delivering on the fundamentals side, but their valuations shrink.

The worst case scenario is that one or several of these companies stumbles for a little bit on the fundamentals side (perhaps temporarily so), which then leads to a double whammy of decreased earnings growth and a lower valuation ratio.

In the meantime, the stock market is merely a market for stocks. So I will continue investing every month in the values I could find today. For companies that are overvalued, I would not invest today, but keep them on my watchlist. If I hold an expensive company, I would likely keep owning, for as long as it doesn't hit my sell criteria.

17 Dividend Growth Stocks Rewarding Owners With A Raise

I review the list of dividend increases every week, as part of my portfolio monitoring process. I leverage several of my dividend investing resources for this effort.

I started by reviewing the list of all dividend increases for the week. There were 37 of them. I then narrowed the list down to the companies that have managed to boost dividends for at least ten years in a row. I also focused on companies that had a meaningful combination of yield and dividend growth.

The companies for this week’s review include:

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.

For a sample dividend stock analysis, check my review of Atmos Energy (ATO).

Relevant Articles:

- Twelve Dividend Growth Stocks Rewarding Shareholders With Raises

- 26 Dividend Growth Stocks Raising Dividends Last Week

 

- Three Dividend Growth Companies Raising Distributions Last Week

- Eight Dividend Growth Companies Rewarding Shareholders With Raises Last Week

The Powerful Concept of Covering Expenses With Dividends

My investment strategy is Dividend Growth Investing. I invest in companies that have a long track record of annual dividend increases. These are well-known companies that can be found on several well-known dividend lists:

- Dividend Achievers - Companies that have increased dividends annually for at least 10 years in a row

- Dividend Aristocrats - S&P 500 Companies that have increased dividends annually for at least 25 years in a row

- Dividend Champions - Companies that have increased dividends annually for at least 25 years in a row

- Dividend Kings - Companies that have increased dividends annually for at least 50 years in a row

Dividends from diversified portfolios tend to grow at or above the rate of inflation over time. This is because companies manage to grow earnings over time. Companies also manage to grow the amount of excess cashflows they generate as well. That's what drives growth in dividends over time - growth in  earnings per share. Ultimately, those businesses also grow intrinsic values. While share prices will fluctuate in the short run, in the long-run those share prices would likely grow at the rate of increase in the underlying fundamentals. 

Dividends are a great source of income in retirement, because they are more stable, and easier to predict than share prices. That makes them a very good source of income in retirement.

For example, I could reasonably expect that a REIT like Realty Income (O) would distribute at least $3.16/share in dividends over the next 12 months. If history is any guide, this company would also raise those dividends as well.

However, I have no idea whether the stock price would be above $80/share or below $40/share.

Investing to me means buying future retirement income. 

For each $1000 I invest today, I expect to generate about $30 in annual dividend income that grows above the rate of inflation. Reinvesting dividends further grows total annual dividend income.

I keep stacking assets and reinvesting dividends until dividend income exceeds annual expenses. That's the dividend crossover point, which is synonumous with financial independence for dividend growth investors. 

The concept of covering expenses with dividends is very powerful.

If I spend $50/month on internet, that's $600/year.

To generate $600/year in dividends, I need to invest $20,000 in a portfolio at a 3% average dividend yield. 

Once I invest $20,000 my internet is essentially paid for.

Also those dividends increase over time, at or above the level of inflation.

The concept of a dividend crossover point is a very neat way to illustrate your path on the way to financial independence. It works for covering overall expenses, and also for working on your way to covering expenses, one at a time.

If your overall expenses are say $3,000/month, it may seem impossible to reach there. Or you may get discouraged about the time it could take to get there. This is where defining smaller dividend crossover points first may make it seem not so impossible. 

You can get motivated by smaller dividend crossover points such as:

     $50/month - I can cover my internet with dividends

     $100/month - Dividends pay my cell phone

     $150/month - I can buy a Starbucks latte every day w/dividends

     $500/month - Dividends can cover car payment

     $1,000/month - Dividends pay my rent

 

Learn more about the Dividend Crossover Point here:

 

This exercise also shows the "cost" of  a typical recurring expense as well (e.g. that daily Staburcks Latte). It also shows the amount of capital it would take in retirement to pay for such expense. It's also a good way to look at the natural progression of dividends too..

Of course, nobody just hands you out $20,000. Getting to a certain income target is a function of:

1. How much you can invest every month

2. Rate of return (Dividend Yield + Dividend Growth)

3. How long you invest for

As I stated above, for each $1000 I invest today, I expect to generate about $30 in annual dividend income that grows above the rate of inflation. Reinvesting dividends further grows total annual dividend income.

I keep stacking assets and reinvesting dividends until dividend income exceeds the target expense I am needing to be covered.

For example, if you can invest $1,000/month, and find companies that yield 3% and grow dividends at a rate of 6%/year, it would take 19 months to get to the point of generating $50 in dividends per month.

If you can only invest $500/month, using the returns criteria listed above, it would take 36 months to get to the point of generating $50 in dividends per month.

You may like the spreadsheet listed in this post, which helps me play around with various scenarios.

All of those scenarios assume dividend reinvestment into more shares. But frankly, instead of thinking of "how much capital I need to retire", I like to think in terms of "how much income I can generate to retire". I use the terms "retire" and "achieve financial independence" interchangeably.

Growing that dividend income is extremely motivating.  You know exactly where you are on your journey at any moment. 

You grow that dividend income stream through several inputs.

1. Capital you invest

2. Reinvesting Dividends

3. Dividends that grow

All of those factors work together, in synchrony, to help you build that income machine.

Brick by Brick

That's you financial future in question. So make sure you have a strong foundation for your financial house to be in order.

To me this means focusing on sound businesses, with competitive advantages, long histories of annual dividend increases, sound business models, and making sure those businesses are making and growing that net income over time. It also means diversifying into as many quality businesses as I can find, making sure I do not overpay, and making sure I am not concentrated in only a few companies and in a few sectors. It also means not chasing yield, but focusing on dividend stability, sustainability and evaluating that the payout ratio is not too high or growing too much.

Twelve Dividend Growth Stocks Rewarding Shareholders With Raises

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

Over the past week, there were 34 companies that announced dividend increases. Twelve of those companies have managed to increase dividends for at least 10 years in a row. I usually focus on the companies that have managed to increase annual dividends for at least ten consecutive years. The companies that have raised dividends over the past week, and also have managed to increase dividends for at least ten years in a row are listed below.

The companies include:

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.

Relevant Articles:

- 26 Dividend Growth Stocks Raising Dividends Last Week

- Three Dividend Growth Companies Raising Distributions Last Week

- Eight Dividend Growth Companies Rewarding Shareholders With Raises Last Week

- Five Dividend Growth Companies Raising Dividends Last Week