I review the list of dividend increases every week, as part of my monitoring process. This is a helpful step that helps me check for dividend increases for companies I own. I update my dividend portfolio spreadsheet with the new dividend rates, in order to see if my portfolio’s organic dividend growth rate is increasing above the rate of inflation.
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I also use this process in order to identify hidden dividend gems for further research.
I started with the list of all dividend increases for the week, and then narrowed it down by focusing only on those companies that have managed to grow dividends for at least a decade. I came up with a list of five companies for today’s review. The next step involves a brief analysis of each company, analysis of trends in earnings and dividends, followed by a brief take on valuation. The goal is to analyze not only historical dividend growth, but try to determine if it was supported by growth in fundamentals. It is helpful to evaluate the latest dividend hike against the historical dividend growth. We are looking for companies that grow earnings, grow dividends and grow intrinsic values over time. However, we also want to get those companies only if the valuation is right. Even the best company in the world is not worth overpaying for.
The five dividend growth companies which raised dividends over the past decade include:
NextEra Energy, Inc. (NEE), through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear, and natural gas-fired facilities. The company raised its quarterly dividend by 13% to $1.11/share. This marked the 24th consecutive annual dividend increase for this dividend achiever. The new yield for the company is 2.80%. The company expects 12% – 14% annual dividend growth over the next two years.
“The board’s approval to continue our 12 to 14 percent annual growth in dividends per share reflects the continued strength of the earnings and operating cash flow growth at NextEra Energy as a result of our success in executing on our industry-leading business strategy,” said Jim Robo, chairman and chief executive officer of NextEra Energy. “With a payout ratio of only 59 percent at the end of 2017, well below the peer average of roughly 65 percent, and $5 billion to $7 billion in excess balance sheet capacity, we remain well-positioned to support the dividend policy going forward. I believe we continue to offer a best-in-class total return potential, with above-average dividend growth and our recently extended 6 to 8 percent compound annual growth rate in adjusted earnings per share through 2021.”
NextEra Energy has managed to increase its dividends at an annual rate of 9.10%/year over the past decade. The company supported this dividend growth by growing earnings per share from $4.07 in 2008 to $6.70 in 2017. Currently, the stock is overvalued at 23.30 times earnings. It is looks overvalued, even when using adjusted earnings estimates of $7.45-$7.95/share for FY 2018. The stock may be worth a second look on dips below $134/share.
Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Canada, Australia, New Zealand, Mexico, and Puerto Rico. Genuine Parts Company announced a 6.70% increase in the regular quarterly cash dividend to 72 cents/share. This dividend king has paid a cash dividend every year since going public in 1948, and 2018 marks the 62nd consecutive year of increased dividends paid to shareholders. The new yield for Genuine Parts Company is 3.10%.
The company has managed to increase its dividends at an annual rate of 6.50%/year over the past decade. Genuine Parts company supported this dividend growth by growing earnings per share from $2.92 in 2008 to $4.18 in 2017. Unfortunately, the company has been unable to grow earnings per share for 4 years in a row. Using FY 2017 earnings, the stock seems overvalued at a P/E of 22.10. Using forward earnings estimates of $5.65/share however, the stock looks attractively priced at a forward P/E of 16.70 and a dividend yield of 3.10%.
Walmart Inc. (WMT) operates retail stores in various formats worldwide. It operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. The company raised its quarterly dividend by 2% to 52 cents/share. This marked the 45th consecutive year of dividend increases for this dividend aristocrat.
Wal-Mart grew earnings per share from $3.35 in 2009 to an adjusted EPS of $4.42 in 2018. The company expects FY earnings per share for 2019 in the $4.75 – $5.00 range. Unfortunately, this is lower than the EPS high of $5/share hit in 2013.
It is nice that they are keeping their dividend streak alive, but unfortunately, this is the fifth consecutive year of 2% annual dividend increases for Wal-Mart. I believe that future dividend increases will be nominal, given the lack of earnings growth over the past five years. In addition, the stock yields 2.30% and looks overvalued at 21 times adjusted earnings.
Waste Management, Inc. (WM), through its subsidiaries, provides waste management environmental services to residential, commercial, industrial, and municipal customers in North America. Waste Management raised its quarterly dividend by 9.40% to 46.50 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, Waste Management has managed to grow annual distributions at a rate of 6.80%/year. The company supported this dividend growth by growing earnings per share from $2.19 in 2008 to $3.22 in 2017. The stock is overvalued at 26.50 times earnings and yields 2.20%. I like the stability of the business model, but would find the stock more appealing on dips below $64/share.
National Health Investors, Inc. (NYSE: NHI) is a real estate investment trust specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI’s portfolio consists of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals. The REIT hiked its quarterly distribution by 5.30% to $1/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to boost annual dividends by 6.60%/year. The new yield is 6.20% as a result of the recent dividend hike.
Article by Dividend Growth Investor