I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies that have increased dividends for at least a decade. I do this in order to focus on companies that have managed to raise dividends throughout a full economic cycle or two. I also focused my attention on the companies which have managed to grow dividends by more than a token amount. My next step involves reviewing trends in fundamentals over the preceding decade, in order to determine if the business is growing. I also try to determine if the dividend is sustainable and can grow in the future. I want dividends that increase due to increases in earnings power. I do not want dividends that increase merely because the payout ratio is being expanded.
Last but not least, I also like to review valuations. After all, even the best company in the world is not worth overpaying for. If you overpay for an investment, you may still lose money, even if the company excels on the operations level and meets its growth forecasts.
Charlie Munger: Invert And Use “Disconfirming Evidence”
Over the past week, there were several companies that gave their shareholders a raise. The companies include:
The Travelers Companies, Inc. (TRV), through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance. The company raised its quarterly dividend by 7.50% to 72 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, Travelers Companies has managed to boost dividends to shareholders at a rate of 10%/year. Earnings per share grew from $6.86 in 2007 to $10.36 in 2016. Traveler’s is expected to earn $9.44/share in 2017.The stock sells for 12.40 times forward earnings and yields 2.40%. I would add the stock to my list for further research, as I believe it is attractively valued today.
CSX Corporation (CSX), together with its subsidiaries, provides rail-based transportation services in the United States and Canada. The company raised its quarterly dividend by 11.10% to 20 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, CSX Corporation has managed to boost dividends to shareholders at a rate of 20.70%/year. This strong rate of dividend growth was achieved through the expansion of the dividend payout ratio, as well as strong earnings per share growth. The company managed to boost earnings from 91 cents/share in 2007 to $1.81/share by 2016. CSX is expected to earn $2.06/share in 2017. The stock is overvalued at 24.50 times forward earnings and yields 1.60%. CSX may be an interesting idea on dips below $36/share.
Sonoco Products Company (SON) manufactures and sells industrial and consumer packaging products in North and South America, Europe, Australia, and Asia. The company operates through four segments: Consumer Packaging, Paper and Industrial Converted Products, Display and Packaging, and Protective Solutions. The company raised its quarterly dividend by 5.40% to 39 cents/share. This marked the 35th consecutive annual dividend increase for this dividend champion. Over the past decade, Sonoco has managed to boost dividends to shareholders at a rate of 4.30%/year. Earnings per share increased from $2.10/share in 2007 to $2.81/share in 2016. The company is expected to earn $2.74/share in 2017. The stock is close to overvalued at 19.50 times forward earnings. Sonoco currently yields 3%.
The Southern Company (SO), together with its subsidiaries, engages in the generation, transmission, and distribution of electricity. The company raised its quarterly dividend by 3.60% to 58 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, Southern Company has managed to boost dividends to shareholders at a rate of 3.80%/year. Unfortunately, it has barely managed to increase earnings per share over the past decade. Earnings per share increased from $2.28/share in 2007 to $2.55/share in 2016. The company is expected to earn $2.98/share in 2017. As a result, I believe that future dividend growth will be minimal over the next decade, unless earnings growth picks up. The stock is attractively valued at 16.80 times forward earnings. The company yields 4.60%. However, the lack of earnings growth makes the company a hold at best.
Omega Healthcare Investors, Inc. (OHI) is a real estate investment trust, which invests in healthcare facilities, primarily in long-term healthcare facilities in order to create its portfolio. The REIT raised its quarterly dividend to 63 cents/share. Omega Healthcare Investors has boosted distributions for 15 years in a row. The ten year dividend average growth rate is 9.40%/year. This growth was supported by the increase in FFO from $1.42/share in 2007 to $3.41/share in 2016. The REIT is cheap at 10.30 times FFO and yields 7.30%
Magellan Midstream Partners, L.P. (MMP) engages in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. It operates through Refined Products, Crude Oil, and Marine Storage segments. The partnership raised distributions to 87.25 cents/unit. This MLP has raised distributions to unitholders for 17 years in a row. Over the past decade, Magellan Midstream Partners has manage to boost distributions at a rate of 11%/year. Currently, the partnership yields 4.60%. Per the partnerships latest annual release, the distributable cash flow per unit exceeds the amount of distributions paid to unitholders by a factor of 1.20.