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
