As part of my monitoring process, I review the list of dividend increases every week. This process helps me to monitor the performance of existing holdings, while also identifying companies for further research. I focus my attention on companies that have raised dividends for at least a decade, in order to focus on the companies that have delivered during an average boom-bust economic cycle. I try to dig further into each dividend increase, by looking at trends in earnings per share, valuation and historical dividend growth, in order to determine if a company is worth researching any further. This process is a great addition to my monthly screening using my entry criteria. It is very helpful to check the pulse of dividend increases, which could be lost when analyzing averages.
Over the past week, there were eight companies that raised dividends to shareholders, and have managed to boost dividends for at least a decade. The companies include:
Commerce Bancshares, Inc. (CBSH) operates as the holding company for Commerce Bank that provides retail, mortgage banking, corporate, investment, trust, and asset management products and services to individuals and businesses. It operates through three segments: Consumer, Commercial, and Wealth.
The company raised its quarterly dividend by 4.40% to 23.50 cents/share, bringing the new dividend yield to 1.60%. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, the company has managed to boost its dividends at an annual rate of 4.40%/year. Between 2007 and 2017, Commerce Bancshares managed to grow earnings from $1.73/share to $2.77. Analysts expect the company to earn $3.39/share in 2018. The stock may be worth a closer look below $50 - $51/share.
Dominion Energy, Inc. (D) produces and transports energy in the United States. The board of directors of Dominion Energy raised the quarterly dividend by 8.40% to 83.50 cents/share, bringing the yield to 4.50%.This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost its dividends at an annual rate of 8.60%/year. Dominion Energy’s earnings fell from $3.88/share in 2007 to $3.44 in 2016. Analysts expect the company to earn $3.58/share in 2017. The stock is overvalued at 21.10 times forward earnings. I view it as a hold, with dividends being reinvested elsewhere, due to the lack of earnings growth. I am hopeful that future acquisitions can kick start earnings growth over the next decade.
Meredith Corporation (MDP) operates as a diversified media company in the United States. It operates in two segments, Local Media and National Media. The company raised its quarterly dividend by 4.80% to 54.50 cents/share, bringing the stock yield to 3.30%.
This marked the 25 year of annual dividend increases for this newly minted dividend champion. Over the past decade, the company has managed to boost its dividends at an annual rate of 10.90%/year. Meredith Corporation’s earnings rose from $2.83/share in 2008 to $4.16 in 2017. Analysts expect the company to earn $3.38/share in 2018. The stock looks fairly valued at 17 times forward earnings. Unfortunately, due to the slow growth in earnings per share, and the general expectation for weakness in print media over time, I cannot get myself to buy this stock.
Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. It operates through two segments, Aflac Japan and Aflac U.S. Aflac raised its quarterly dividend by 15.60 to 52 cents/share, resulting in a dividend yield of 2.30%. This dividend champion has increased dividends to shareholders for 36 years in a row. The latest dividend increase was much higher than the ten year average of 8.10%/year. Dividend growth has been supported by a rise in earnings from $3.31/share in 2007 to $6.42/share in 2016. Analysts expect the company to earn $7.64/share in 2018. At 13.90 times 2016 earnings or 11.60 times forward earnings, I see Aflac as attractively valued.
Chevron Corporation (CVX), through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The company raised its quarterly dividend from $1.08/share to $1.12/share, thus maintaining its status of a dividend champion. This champion has managed to reward shareholders with a raise for 31 years in a row. The latest dividend increase was smaller than the ten year average of 6.70%/year. This was due to the fact that earnings per share declined from $8.77/share in 2007 to a negative $0.27/share in 2016. Analysts expect the company to earn $4.18/share in 2018. While it yields 3.60%, the dividend payout ratio is over 100% and the forward P/E is 28.40. I see the company as a hold, with dividends being allocated elsewhere.
California Water Service Group (CWT), through its subsidiaries, provides water utility and other related services in California, Washington, New Mexico, and Hawaii. The company raised its quarterly dividend by 4.20% to 18.75 cents/share. This marks the 51st year of annual dividend increases for this dividend king. The new yield is 1.80%. Over the past decade, the company managed to grow its dividend at a rate of 2.20%/year. This was supported by growth in earnings per share from $0.75 in 2007 to $$1.01 in 2016 Analysts expect the company to earn $1.33/share in 2018. The stock is massively overvalued at over 31 times forward earnings and a low yield of 1.80%. It may be worth a second look at a P/E of 16, which equates to roughly $21/share.
SJW Group (SJW), through its subsidiaries, provides water utility services in the United States. It engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water. The Board of Directors approved an increase in the 2018 annual dividend over total dividends paid in 2017 of 7.7% or $0.08 per share to $1.12 per share. Dividends have been paid on SJW Group’s and its predecessor’s common stock for 297 consecutive quarters and the annual dividend amount has increased in each of the last 50 years. SJW Group is a member of the elite dividend kings list. The ten year dividend growth rate is 3.70%/year. Dividend growth was supported by strong earnings growth. The company managed to grow earnings from $1.04/share in 2007 to $2.57/share in 2016. The forward estimates for 2017 are $2.48/share. The stock yields 1.90%. This is a company whose business model will not be disrupted. Unfortunately, it is overpriced today at 23.80 times forward earnings and also has a low yield of 1.90%. It would be refreshing to see water utilities sell at 16 times earnings, which would be equivalent to roughly $40/share.
Owens & Minor, Inc. (OMI), together with its subsidiaries, operates as a healthcare services company in the United States, the United Kingdom, Ireland, France, Germany, and other European countries. The company operates through three segments: Domestic, International, and Clinical & Procedural Solutions. The company announced that the Board of Directors approved a first quarter 2018 dividend of $0.26 per share. This represents a 1% increase over the prior period and marks the twentieth year in a row of dividend increases for this dividend achiever. Over the past decade, it has been able to grow dividends at an annual rate of 8.60%/year. This was supported by growth in earnings per share from $1.19/share in 2007 to $1.76 in 2016. The forward estimates are $1.65/share in 2018. Unfortunately, the company has unable to grow earnings since 2011. The stock is cheap at 10.70 times forward earnings and has a high yield of 5.90%. The forward dividend payout ratio is at 63%, which indicates that there is a margin of safety in the dividend stream. If the dividend holds, you do not need too much growth in earnings and dividends per share, given that the entry yield is close to 6%. In general, I am not a fan of companies where the upside seems limited to just the dividend.
Visa Inc. (V) operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. The Board of Directors authorized a new $7.5 billion share repurchase program and increased the Company’s quarterly cash dividend to $0.21 per share. This is the second dividend increase over the past year. Once 2018 is over, Visa will have raised dividends for ten consecutive years. The quarterly dividend has increased from 2.625 cents/share in 2008 to 21 cents/share in 2018. Visa generated a profit of $0.24/share in 2008, which rapidly grew to $2.80/share in 2017. The forward earnings estimates are for Visa to earn $4.24/share in 2018. If the company is ever available at $85/share, equivalent to 20 times forward earnings, it would be a good deal. I have built my position when the stock was available at 20 times forward earnings. Do not let the low yield of 0.70% fool you. The dividend yield is always low, which deters many investors who lack long-term vision. The dividend growth potential is enormous, since this could bring high yields on cost in the future, couples with the potential for massive capital gains.
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Article by Dividend Growth Investor