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Natural Gas Smells of Dividend Growth

Natural Gas Smells of Dividend Growth


Utilities are not exciting stocks, and will not make you rich. But keeping a select few in your portfolio can add a level of stability and income that is hard to match in equities. A strong regional monopoly paired with a heavily regulated industry that requires massive capital investment basically assures the longevity of the company.

But where utilities often come up short is in inflation-beating growth, especially among dividends. Dividend growth of 1-2% a year is just not going to cut it. But these four natural gas utility companies are growing their dividends above the average inflation rate (3% based on CPI) and helping investors keep their purchasing power.

Northwest Natural Gas
Northwest Natural Gas Company (NYSE: NWG) is engaged in the distribution of natural gas in Oregon and southwest Washington. WNW Natural operates in two primary reportable business segments, Local Gas Distribution and Gas Storage.
5 dividend growth - 4.85%
Current yield - 3.84%

Natural Gas Fuel Company
National Fuel Gas Company (NYSE: NFG), incorporated in 1902, is a diversified energy company with its headquarters in Williamsville, New York. The Company's assets are distributed among four business segments: Exploration and Production, Pipeline and Storage, Utility and Energy Marketing.
5 year dividend growth - 3.64%
Current yield - 2.02%

Piedmont Natural Gas
Piedmont Natural Gas Company, Inc. (NYSE: PNY) is an energy services company. The Company is engaged in the distribution of natural gas to over one million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee, including 61,000 customers served by municipalities who are its wholesale customers.
5 year dividend growth - 3.93%
Current yield - 3.93%

Energen
Energen Corporation (NYSE: EGN) is an energy holding company engaged in the development, acquisition, exploration and production of oil, natural gas and natural gas liquids in the continental United States, and in the purchase, distribution and sale of natural gas in central and north Alabama.
5 year dividend growth - 4.26%
Current yield - 0.96%

This article was written by The Dividend Pig. If you enjoyed this article, please consider subscribing to my feed


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Stock Analysis: Southside Bancshares Inc. (SBSI)

Linked here is a detailed quantitative analysis of Southside Bancshares Inc. (SBSI). Below are some highlights from the above linked analysis:

Company Description: Southside Bancshares Inc. primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

SBSI is trading at a discount to all four valuations above. The stock is trading at a 34.6% discount to its calculated fair value of $31.01. SBSI earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

SBSI earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. SBSI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1969 and has increased its dividend payments for 12 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

SBSI earned a Star in this section for its NPV MMA Diff. of the $32,940. This amount is in excess of the $2,300 target I look for in a stock that has increased dividends as long as SBSI has. The stock's current yield of 4.07% exceeds the 3.9% estimated 20-year average MMA rate.

Memberships and Peers: SBSI is a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Cullen/Frost Bankers, Inc. (CFR) with a 2.9% yield, First Financial Bankshares Inc. (FFIN) with a 2.7% yield and International Bancshares Corp. (IBOC) with a 2.0% yield.

Conclusion: SBSI earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks SBSI as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $49.23 before SBSI's NPV MMA Differential decreased to the $2,300 minimum that I look for in a stock with 12 years of consecutive dividend increases. At that price the stock would yield 1.68%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,300 NPV MMA Differential, the calculated rate is 8.5%. This dividend growth rate is significantly below the 16.6% used in this analysis, thus providing only a margin of safety. SBSI has a risk rating of 2.25 which classifies it as a medium risk stock.

SBSI has assets of approximately $3.0 billion and operates 48 community-banking facilities in Texas including two branches in Fort Worth, one in Arlington and a loan production office in Austin. SBSI offers a full range of financial services including consumer and commercial loans, loans to municipalities, deposit accounts, trust, personal banking, safe deposit boxes, brokerage services, credit cards, ATM's and an array of electronic services. I have been looking for a bank to add to my portfolio and have been watching SBSI for some time. By every metric that I track, SBSI is trading at a discount. For the most part, it has good dividend fundamentals. My hesitation comes from its level of debt. At 77%, SBSI's debt to total capital well in excess of the 45% maximum that I look for, so I will stay on the sidelines at this time. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in SBSI (0.0% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:
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- Harleysville Group Inc. (HGIC) Dividend Stock Analysis
- Nucor Corporation (NUE) Dividend Stock Analysis
- AFLAC Incorporated (AFL) Dividend Stock Analysis
- More Stock Analysis

This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].


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Weekend Reading Links - January 30, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

There are some really good articles here, please take time and read a few of them.


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Stock Analysis: Johnson & Johnson

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company is a dividend aristocrat which has increased distributions for 48 years in a row. One of the company’s largest investors is no other than Warren Buffett’s Berkshire Hathaway.

Over the past decade this dividend stock has delivered an annualized total return of 4.10% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 11.10% per year since 2000. Analysts expect Johnson & Johnson to earn $4.75 per share in 2010 and $4.99 per share in 2011. This would be a nice increase from the $4.40/share the company earned in 2009.


The company’s return on equity has remained above 25%, with the exception of a brief decrease in 2006 and 2007. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in US dollars has increased by 13.40% per year since 2000. A 13% growth in distributions translates into the dividend payment doubling every five and a half. If we look at historical data, going as far back as 1972, we see that Johnson & Johnson has actually managed to double its dividend every five years on average.


Over the past decade the dividend payout ratio has increased from 37% in 2000 to 44% in 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Johnson & Johnson is attractively valued at 12.80 times earnings, yields 3.50% and has a sustainable dividend payout. In comparison Abbott Laboratories (ABT) yields 3.60% and trades at a P/E of 15.60. I would continue monitoring Johnson & Johnson and will consider adding to a position in the stock on dips.

Full Disclosure: Long JNJ

Relevant Articles:

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].


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The Hallwood Group Incorporated (HWG)

The Hallwood Group Incorporated (AMEX:HWG) is a recovering conglomerate. Up until early 2009, it ran both a profitable textile business and an unprofitable energy business (that also had the added attribute of being a lightening rod for lawsuits - more on that later). Thankfully, the company bankrupted the energy subsidiaries and is now operating solely in textile through its subsidiaries, Kenyon Industries (woven synthetic fabrics) and Brookwood Laminating (laminating services for fabrics). HWG is currently trading at a P/E of just 2.3x and 10% below its NCAV, despite having strong operating cash flows and almost no debt. Additionally, I adjusted the last eight years' of income statements to remove the effects of the energy business and calculated that its PE10 is approximately 4.5, showing that this is hardly a situation of a single year of excess performance.

With all of these positives, what is causing the stock to trade at such depressed levels? It appears to be litigation. Thcone company is engaged in, at my count, six different lawsuits, with several other fines. The bulk of these are related to HWG's energy business, which, though the process of bankruptcy, is engaging in lawsuits with different stakeholders. From my understanding litigation in the process of bankruptcy is the rule, not the exception and so we should expect that the company will resolve these in the usual course of business. Since the bankruptcy, HWG has remained highly profitable with an exceptional amount of free cash flow. The biggest and most important claim is, however, not related to the energy business and instead is aimed directly at the textile business as an alleged patent infringement.

On July 31, 2007, Nextec Applications, Inc. filed Nextec Applications, Inc. v. Brookwood Companies Incorporated and The Hallwood Group Incorporated ... claiming that the defendants infringed five United States patents pertaining to internally-coated webs: U.S. Patent No. 5,418,051; 5,856,245; 5,869,172; 6,071,602 and 6,129,978. ... Nextec sought leave of Court to add two additional patents to the lawsuit: U.S. Patent No. 5,954,902 and 6,289,841. The Court granted leave to Nextec, and Nextec filed its amended complaint on September 19, 2008.
Now, HWG has already had some success, as seven of the ten patent claims have been dismissed:
On April 1, 2010, the Court issued its initial Order, following a hearing held on February 17, 2010 on various motions for summary judgment filed by both parties. In the Order, the Court dismissed Nextec's claims of infringement based on seven of the ten remaining patent claims asserted in the action.
The Nextec lawsuit is a dark cloud hanging over the company and a leading possibility for the company's current valuation. Some other worrisome facts about HWG for the value investor include its sales concentration, in that sales ot the military account more than 70% of sales (with Military sales being split largely between two companies, Tennier Industries and ORC Industries).

Additionally, the company's CEO has created a company, Hallwood Investments Ltd. ("HIL"), to enter into a controversial contract for "international consulting and financial advisory services." This contract awards HIL $996,000 per year and reimburses HIL for reasonable expenses which in the past have included more than $160,000 for office space and administrative services and more than $150,000 for travel. I have written several times in the past about major founder/family shareholders who treat the company as if it were private, at the expense of unrelated shareholders, and for me this is a big red flag from a value perspective. I do NOT think this is the case here, as Mr. Gumbiner receives no direct compensation from the company. Although the figures are somewhat high, it seems reasonable that Mr. Gumbiner would choose to have his compensation flow into a corporation, possibly for tax purposes.

From my perspective, HWG is undervalued and I think the resolution of the Nextec lawsuit will be a major catalyst event for the company. I take it as a good sign that 7/10 of Nextec's claims have been dismissed.

Talk to Frank about HWG

Author Disclosure: No position

This article was written by frankvoisin.com. If you enjoyed this article, please consider subscribing to my feed.


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Canadian Imperial Bank of Commerce (TSE:CM, NYSE:CM) Dividend Analysis

Canadian Imperial Bank of Commerce, also known as CIBC, is the 5th largest bank in Canada.

CIBC provides a full range of financial service products and services to 11 million individual, small business, commercial, corporate and institutional clients in Canada and around the world.
Historically, CIBC is the merger of the Canadian Bank of Commerce (Established in 1867) and the Imperial Bank of Canada (Established in 1875) which took place in 1961. It represents 144 years of banking business.

CIBC is not currently in a leading positions compared to the other top banks and is working hard on growing and competing with the other big boys. It's targeting to be #3 while eyeing #1 or #2 spot. I have to say that it's not a small target to reach the top 3 when you consider that all the other banks are aggressively expending.

They target a 40%-50% dividend payout with a shareholder return greater than the S&P/TSX Composite Banks Index (dividends reinvested) on a rolling five-year basis. In short, they are saying that you, as an investor, will do better with CIBC than half of the other financial institutions involved in retail banking (could be a life insurance company). That's quite a bold statement.

Fact Sheet

Some quick facts on CIBC.
  • Stock Ticker: CM on both TSX and NYSE
  • Market Cap.: 29.89B$
  • P/E: 12.95
  • EPS: 5.88$
  • Dividend Yield: 4.57%
  • 52-Week Low: 62.60$
  • 52-Week High: 81.37$
  • 52-Week Range: 71.98%
The one year graph shows a decent 19.43% growth in value. It's on par with the S&P TSX index but it doesn't include the 4.57% dividend yield though. That would give a 24% return on investment for 2010.


Dividend Growth

CIBC's dividend growth is decent but not an aristocrats. For the banks, I am willing to forgive not increasing dividends through 2009 and 2010 due to the Basel III rules but CIBC happens to have held its dividend back in 1998 and 1999.


The dividend growth graph may look decent but CIBC's 5 year dividend growth average is at 5.67% while the other banks exhibit a much higher average growth. Here is the 5 year dividend growth average for the top 5 banks.

  • CM - 5.67%
  • BNS - 8.41%
  • TD - 9.33%
  • BMO - 9.08%
  • RY - 11.75%
3 of the 5 banks held their dividend rate fixed for 2009 and 2010 while the other 2 held it for 2010 only and they still managed to have a nice dividend growth average for the past 5 years and CIBC is lagging behind.

The dividend payout ratio is a little erratic as you can see with 4 of the last 9 years paying above 100%. 3 of these 4 years are due to CIBC having negative earnings. I decided to represent them at 100% since it clearly paid more than it earned. In 2002, the payout was actually 117%. The 5 year average dividend payout is 65.86% and out of range of their 40%-50% target at the moment.


Competitors

I took a snapshot of the last 6 months and CIBC performed quite well on the market. The erratic dividend payout ratio and the lack luster dividend growth don't seem to be holding it back. The high yield may be what is keeping the value up.


The P/E for CM is definitely attractive at 12.95 and below average of the other top banks. It's interesting to see the premium investors are willing to pay for the top 5 banks while National Bank and Laurentian Bank are staying just about below 12.


CompetitorsTickerPriceMarket Cap.YieldP/E
Toronto DominionTD.TO$75.11$65.983.25%14.71
Bank of MontrealBMO.TO$59.30$33.594.72%12.49
Royal BankRY.TO$52.90$75.393.78%15.28
Bank of Nova ScotiaBNS.TO$56.15$58.563.49%14.38
National BankNA.TO$69.95$11.373.77%11.77
Laurentian BankLB.TO$53.01$1.272.94%11.45

Even with a decent P/E based on today's data, the earnings per share for CIBC have not been as consistent over the past decade which is concerning. The delta is pretty wide in some cases which should be a cause for concern. I have not read further as to why it hit rock bottom in 2 occasions but it should be researched to understand management better.

Thoughts

If you do business with President Choice Financial, you're essentially generating revenue for CIBC through the partnership CIBC has with Loblaws. The erratic payout ratio and earnings is making me cautious. I may need a couple more years to see it steer away from the wild swings. The yield is definitely attractive but there are other options. I feel that management has worked hard to not reduce the dividends but any future challenges may require a reduction.


Readers: Do you own CIBC? What do you like about it?

Full Disclosure: I am long with BMO and BNS.


Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

This article was written by The Passive Income Earner. If you enjoyed this article, please consider subscribing to my feed.


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Volt: The Business Looks Good, The Accounting Doesn't

Volt Information Sciences (VOL) provides staffing and other business services. It trades for $132 million, but has net current assets (current assets less total liabilities) of $200 million according to its latest full set of financial results. The problem is that these financials are more than a year old!

The company announced that it is undergoing an accounting review, and therefore it has had to miss some deadlines with respect to its financial reporting. However, it has provided some information to investors, even though it cannot provide all of it. For example, the company estimated its revenues by segment for 2010, and reports strong revenue growth and stable gross margins in its staffing business from 2009. It also reports progress towards closing down its money-losing telecommunications services segment.

But while business appears to be headed in the right direction, the accounting issues could result in poor results for investors. First and most obvious, it is not known what the effect of the accounting restatements will be. While the company did just recently report the size of its cash balance, it is not known whether other asset or liability accounts will change for the worse.

Second, this accounting review has directly cost the company a rather large amount of money. The company has had to spend an extra $22 million in 2010 to get its accounting right, and it's still not done! For some companies, this wouldn't get noticed. But when the company only trades for $130 million, this is a rather sizable amount that cuts into the investor's margin of safety.

Finally, the NYSE is tired of waiting for the financials. The exchange stated that it will commence de-listing procedures if the company does not meet the latest deadline. Volt does not anticipate being able to meet this deadline; therefore, investors buying the stock now could find themselves dealing with an over-the-counter stock very soon! This could actually present an opportunity for investors in the future, as the company has stated that it will continue to file with the SEC and plans to re-list on the exchange once its accounting house is in order.

If the price falls after de-listing, investors may want to think about getting in at a much more favourable price. Until then, the upside may not justify the risks.

This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the feed.


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The turnaround at Ford

The turnaround is clearly under way at Ford and things are going nicely. Ford is in the best position of the 3 auto makers. Ford has already redesigned it plants and started producing better looking more fuel efficient cars. The company has cut many of its unprofitable brands and focused on improving its core brands.

The company is the only United States auto company that did not require a bailout. Chrysler and General Motors would not have survived the economic downturn without government cash. Ford is improving its financial position. The company has reduced its cash burn rate and now has more than $32 billion dollars in cash. That makes 2 straight years of positive free cash flow which is a difficult to do in the automobile industry.

Let’s take a look at Ford’s internals.

Shares trade at 8.65 times earnings and 8.3 times forward earnings. Shares trade at just 0.45 times earnings growth and 0.46 times sales. The company’s revenue came in at $133 billion dollars Gross margins were19.3% and operating margins were at 5.3%.

Return on assets is improving at 3.02%. The five year earnings growth is expected to be 19%. That’s a great rate for an industry which participates in an industry that had a negative growth rate just 2 year.

The stock is still expensive based on its book value. The company still has a massive debt load of $65 billion dollars. At $17 a share, Ford still looks undervalued when compared to its potential earnings growth and the P/E ratio of its competitors. The stock has had a major run but still has room for growth as its internal metrics continue to improve.

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Stock Analysis: Becton, Dickinson and Co. (BDX)

Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:

Company Description: Becton, Dickinson and Co provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a slight discount to its calculated fair value of $86.55. BDX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

BDX earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 38 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

BDX earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 10.8% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Abbott Laboratories (ABT) with a 3.7% yield, Baxter International Inc. (BAX) with a 2.5% yield and Medtronic, Inc. (MDT) with a 2.4% yield.

Conclusion: BDX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks BDX as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $85.23 before BDX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 1.92%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.6%. This dividend growth rate is slightly below the 10.8% used in this analysis, thus providing only a minimal margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.

Operating in the competitive medical equipment market, BDX generally has enjoyed more favorable demand and pricing than others in the medical equipment industry. The company’s needle and surgical business has provided investors with robust returns for years. As a result of BDX’s innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $86.55. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). I held a positions in ABT and MDT. See a list of all my income holdings here.
Related Articles:
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- Nucor Corporation (NUE) Dividend Stock Analysis
- AFLAC Incorporated (AFL) Dividend Stock Analysis
- Cincinnati Financial Corp. (CINF) Dividend Stock Analysis
- More Stock Analysis

This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].


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Weekend Reading Links - January 23, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

There are some really good articles here, please take time and read a few of them.


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Stock Analysis: Procter & Gamble

The Procter & Gamble Company provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company is a dividend aristocrat index and has increased distributions for 54 years in a row. One of the company’s largest investors is no other than Warren Buffett’s Berkshire Hathaway.


Over the past decade this dividend stock has delivered an annualized total return of 7.50% to its shareholders.


The company has managed to deliver an average increase in EPS of 14.50% per year since 2000. Analysts expect Procter & Gamble to earn $3.98 per share in 2011 and $4.37 per share in 2012. This would be a nice increase from the $3.53/share the company earned in 2010.
Procter & Gamble is an example of the perfect dividend growth stock. It has strong brand recognition, solid competitive advantages as well as a diverse portfolio of products sold throughout the world. The company strives to generate cost savings, tries to grow through innovation and through acquisitions, while carefully managing the cash flow in order to pay dividends and buy back stock consistently. The company has the benefit of its large scale and sells a diverse number of products that have a broad geographic reach. The company has a consistent revenue stream and is targeting earnings per share growth in the high single to low double digits.

The company’s return on equity decreased sharply after the acquisition of Gillette in 2005. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in US dollars has increased by 10% per year since 2000. A 10% growth in distributions translates into the dividend payment doubling every seven years. If we look at historical data, going as far back as 1975, we see that Procter & Gamble has indeed managed to double its dividend every seven years on average.



After decreasing steadily throughout the decade, the dividend payout ratio increased above 50%, mainly on low EPS growth during the 2007- 2009 recession. Based off forward FY 2010 EPS however, the dividend is adequately covered from earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Procter & Gamble is attractively valued at 16 times earnings, yields 3.00% and has a sustainable dividend payout. I would continue monitoring the stock and will consider adding to a position in the stock on dips.

Full Disclosure: Long PG
Relevant Articles:

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].


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