Thursday, January 24, 2019

Seven Dividend Growth Stocks Rewarding Shareholders With a Raise

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me to check up on existing holdings and to identify companies for my watch list.

Last week, there were seven dividend growth stocks that raised dividends to shareholders. Each one of those companies has at least a ten year track record of annual dividend increases. Since dividends are paid out of earnings, these dividend achievers couldn’t have compiled such a record without having enjoyed consistent success in their core business, whatever it is. So you’re looking at a group of profitable enterprises with staying power.

I review the increase relative to the dividend record, along with valuation and track record. The companies included:

Realty Income (O), The Monthly Dividend Company is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 5,600 real estate properties owned under long-term lease agreements with regional and national commercial tenants.

The REIT raised its monthly dividend to 22.55 cents/share, which represents a 3% increase over the distributions paid during the same time last year. This is the 100th dividend increase since Realty Income's listing on the NYSE in 1994. 



During the past decade, Realty Income has managed to boost dividends at an annual rate of 4.40%/year.

Between 2008 and 2017, FFO/share grew from $1.83 to $2.82. Realty Income is expecting to generate FFO/share in the $3.11 - $3.14 range in 2018.

I like Realty Income, but so do a lot of other REIT investors. As a result, it is offering a 4.20% yield and is selling at 20.80 times forward FFO. The REIT is managed well, but I would require at least a 5% entry yield to purchase it. At current rates, this translates into a buy price below $54/share. Check my analysis of Realty Income for more information about the REIT.

BlackRock, Inc. (BLK) engages in the provision of investment management, risk management, and advisory services for institutional and retail clients worldwide. Its products include single and multi-asset class portfolios investing in equities, fixed income, alternatives, and money market instruments.

The company raised its quarterly dividend by 5.40% to $3.30/share. This marked the 10th year of annual dividend increases for this future dividend achiever. Blackrock has managed to boost dividends at an annual rate of 14.10%/year over the past decade.

Between 2008 and 2018, Blackrock managed to grow earnings from $5.78/share to $26.58/share.
Currently, the stock is fairly valued at 15.80 times earnings and yields 3.10%. Check my analysis of Blackrock for more information about the company.

Consolidated Edison, Inc. (ED), through its subsidiaries, engages in regulated electric, gas, and steam delivery businesses in the United States.

The company raised its quarterly dividend by 3.50% to 74 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion.

“The increase in the dividend, the 45th consecutive annual increase for stockholders, reflects our continued emphasis on providing a return to our investors while meeting the needs of our customers,” said Robert Hoglund, Con Edison’s senior vice president and chief financial officer.

Con Edison has managed to grow the dividend at a rate of 1.80%/year over the past decade. Given the decrease in the dividend payout ratio, I would expect dividend growth to pick up a little steam over the next decade to 3% - 4%/year. The company is targeting a payout ratio in the 60% - 70% range.

During the same time, earnings per share grew from $3.37 in 2007 to $4.12/share in 2017 ( adjusted for the effects of the next tax law signed at the end of 2017). Con Ed is expected to earn $4.30/share in 2018.

Currently the stock is fairly valued at 17.80 times forward earnings and yields 3.90%. I am reviewing ConEd for a potential purchase, especially if investor sentiment towards utilities turns sour.

Alliant Energy Corporation (LNT) operates as a utility holding company that provides regulated electricity and natural gas services in the Midwest region of the United States. It operates through three segments: Electric, Gas, and Other.

The company raised its quarterly dividend by 6% to 35.50 cents/share. This marked the 16th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, it has managed to grow its dividends at an annual rate of 7.10%/year.

Between 2008 and 2017 earnings per share rose from $1.30 to $1.99. The company is expected to earn $2.16/share in 2018.

The stock is overvalued at 19.90 times forward earnings. Alliant Energy yields 3.30% and has a forward payout ratio of 65.70%.

CMS Energy Corporation (CMS) operates as an energy company primarily in Michigan. It operates through three segments: Electric Utility, Gas Utility, and Enterprises.

The company raised its quarterly dividend by 7% to 38.25 cents/share. This raise is in line with the average raise of 6.70% over the past five years. This increase marked the 13th year of annual dividend increase for this dividend achiever.

During the same time, earnings per share grew from $1.20 to $1.65/share. The company is expected to earn $2.34/share in 2018.

Currently, the stock is overvalued at 21.70 times forward earnings. The stock yields 3% and has a forward payout ratio of 65%. I usually like utilities at a P/E that is lower than 20, mostly around 15 - 16 times earnings.

Fastenal Company, (FAST) engages in the wholesale distribution of industrial and construction supplies in the United States, Canada, and internationally. It offers fasteners, and other industrial and construction supplies under the Fastenal name.

The company raised its quarterly dividend by 7.50% to 43 cents/share. This move marked the 20th consecutive annual dividend increase for this dividend achiever.

Fastenal has managed to increase dividends at an annual rate of 19.30%/year over the past decade.
The company managed to boost earnings from $0.94/share in 2008 to $2.62/share in 2018.

The stock is overvalued at 22.60 times earnings. It does yield 2.90% today. Fastenal may be worth a second look on dips below $52/share.

ONEOK, Inc. (OKE) engages in the gathering, processing, storage, and transportation of natural gas in the United States. The company operates through Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines segments.

ONEOK raised its quarterly dividend to 86 cents/share. This is an 11.70% increase over the dividend paid during Q1 2018. ONEOK has managed to grow dividends at an annual rate of 16.10%/year over the past decade. The stock yields 5.60%

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