Thursday, March 7, 2019

Busy Week For Dividend Increases

As part of my monitoring process, I review the list of dividend increases every single week. I narrow the list down by focusing on the companies with at least a ten year history of annual dividend increases. I then try to review the trends in earnings, and dividends, in order to determine the likelihood of future dividend growth. The next step is to look at valuation, and take into consideration the growth profile of the enterprise, before coming up with a conclusion on the price.

The past week was busy for dividend investors, given the high number of dividend increases to sift through. After narrowing the list down, I came up with the following thirteen companies that raised dividend last week. The companies include:

The TJX Companies, Inc. (TJX) operates as an off-price apparel and home fashions retailer. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International.
TJX plans to increase the regular quarterly dividend on its common stock to be declared in April 2019 and payable in June 2019 to $0.23 per share. This represents an 18% increase in the current per share dividend and marks the 23rd consecutive year that the Company has raised the dividend. Over the past decade, the Company’s dividend has grown at a compound annual rate of 21.60%.
The Company also announced today its plan to repurchase approximately $1.75 to $2.25 billion of TJX stock during the fiscal year ending February 1, 2020. Between 2009 and 2019, TJX Companies managed to grow earnings from $0.50/share to $2.43/share.

The company is expected to earn $2.61/share in 2019. The stock is close to fully valued at 19.90 times forward earnings. TJX Companies yields 1.80% today. Check my analysis of TJX Companies for more information about the enterprise.

British American Tobacco p.l.c. (BTI) provides cigarettes and other tobacco products worldwide. It manufactures vapour and tobacco heating products; oral tobacco and nicotine products, such as snus and moist snuff; cigars; and e-cigarettes.

British American Tobacco raised its dividend per share by 4.0% to 203.0p, payable in four quarterly dividend payments of 50.75p per share. The company is an international dividend achiever, which has managed to reward shareholders with a dividend increase every year since 1997.

I found the following statement to be illuminating, from the press release:

We recognize that the proposed potential regulatory changes in the US have created some investor uncertainty. We have a long experience of managing regulatory developments, a track record of delivering strong growth while investing for the future and an established multi-category approach. I am confident that my successor, Jack Bowles, will continue to deliver a similar level of sustainable long-term returns as we accelerate our Transforming Tobacco agenda. Looking into 2019 we are confident of another year of high single figure adjusted constant currency earnings growth and this confidence is reflected in our Board’s proposal to increase the dividend by 4%

Earnings per share increased from 1.23 pounds/share in 2009 to 2.63 pounds/share in 2018. The company is expected to earn 3.14 pounds/share in 2019.

I recently initiated a position in the stock. I find BTI to be attractively valued at 9.10 times forward earnings. The stock yields 7.10%. You can check my analysis of British American Tobacco here.

Eaton Corporation plc (ETN) operates as a power management company worldwide. Eaton (ETN) declared $0.71/share quarterly dividend, 8% increase from prior dividend of $0.66. The Board of Directors declared a quarterly dividend of $0.71 per ordinary share, an increase of 8 percent over its last quarterly dividend. The company is expected to earn $5.87/share in 2019. The company raised its quarterly dividend by 8% to 71 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend contender. Over the past decade, the company has managed to grow the dividend at an annual rate of 10.20%.

Between 2008 and 2018, Eaton managed to grow its earnings per share from $3.25 to $4.91.
Eaton expects earnings per share for 2019 to be between $5.70 and $6.00. The stock is attractively valued at 14.10 times forward earnings and offers a dividend yield of 3.50%.

Best Buy Co., Inc. (BBY) operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates in two segments, Domestic and International. The company raised its quarterly dividend by 11.10% to 50 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever . Over the past decade, the company has managed to grow the dividend at an annual rate of 13%. Between 2008 and 2019, the company managed to grow earnings from $3.12/share to $5.20/share. This was achieved by share buybacks, as the number of shares was reduced from 452 million in 2008 to 281 million in 2019.

The company is expecting to earn between $5.45 - $5.65/share in 2020. The stock looks cheap at 12.40 times forward earnings. Best Buy yields 2.90%. It is funny how everyone was expecting the obliteration of Best Buy in 2012 – 2013 by the likes of Amazon. However, someone who invested at the time of maximum pessimism would have done pretty well for themselves. This just goes to show that conventional wisdom is not always right, and should always be questioned.

Silgan Holdings Inc. (SLGN), manufactures and sells rigid packaging for consumer goods products worldwide. It operates through three segments: Metal Containers, Closures, and Plastic Containers. The company raised its quarterly dividend by 10% to 11 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow the dividend at an annual rate of 8.90%. Between 2009 and 2018, Silgan Holdings managed to boost earnings per share from $1.03 to $2.01.The company is expected to earn $2.16/share in 2019. The stock looks attractively valued at 13.20 times forward earnings and offers a dividend yield of 1.50%.

Albemarle Corporation (ALB) develops, manufactures, and markets engineered specialty chemicals worldwide. The company raised its quarterly dividend by 9.70% to 36.75 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion . Over the past decade, the company has managed to grow its dividend at an annual rate of 10.70%. Between 2008 and 2018, Albermarle has managed to boost its earnings from $2.09/share to $6.34/share.

The company is expected to earn $6.22/share in 2019. The stock yields 1.60% and seems attractively valued at 14.60 times forward earnings.

Home Depot, Inc. (HD) is a home improvement retailer, which engages in the sale of building materials and home improvement products. The company raised its quarterly dividend by a massive 32% to cents/share. This marked the tenth year of dividend increases for this newly minted dividend achiever. Previously, Home Depot had a 20 year track record of annual dividend increases, before it kept dividends unchanged in 2008. Over the past decade, the company has managed to grow the dividend at an annual rate of 16.40%. This strong dividend growth was supported by rapid growth in earnings per share. Home Depot managed to boost earnings from $1.34/share in 2009 to $9.73/share in 2019. The company is expected to earn $10.22/share in 2019. Home Depot is selling for 18.30 times forward earnings and yields 2.90%. In comparison, Lowe’s (LOW) sells for 17.20 times forward earnings, but yields 1.85%. Both companies may turn out to be decent additions to a dividend growth portfolio going forward, particularly if we get another decline in share prices in 2019. Both companies are touted as Amazon proof today, which would be interesting to see playing forward over the next decade. I do want to be a little cautious, as we are looking at earnings per share after a 10 year expansion. Earnings will be challenged during the next recession.

McGrath RentCorp, (MGRC) is a business to business rental company, that rents and sells relocatable modular buildings, portable storage containers, electronic test equipment, and liquid and solid containment tanks and boxes in the United States and internationally. It operates through four segments: Mobile Modular, TRS-RenTelco, Adler Tanks, and Enviroplex. The company raised its quarterly dividend by 10.30% to 37.50 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to hike dividends at an annual rate of 5.10%. Between 2008 and 2018, earnings went from $1.72/share to $3.23/share. The company is expected to earn $3.25/share in 2019. The stock is selling at 18.40 times forward earnings and offers a dividend yield of 2.50%.

Southwest Gas Holdings, Inc. (SWX), purchases, distributes, and transports natural gas in Arizona, Nevada, and California. The company operates through Natural Gas Operations and Construction Services segments. The company raised its quarterly dividend by 4.80% to 54.50 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow the dividend at an annual rate of 8.70%.
Between 2008 and 2018, it managed to boost earnings from $1.39/share to $3.68/share in 2018. The company is expected to earn $3.97 /share in 2019. It is interesting to note that between 1989 and 2009 earnings per share largely went nowhere. The stock is selling for more than 20 times forward earnings, which is high. The yield is 2.60%, which seems low for a utility. It may be an interesting look below $72 - $74/share.

Texas Pacific Land Trust (TPL) holds title to tracts of land in the state of Texas. The company operates through two segments, Land and Resource Management, and Water Service and Operations. The company raised its annual dividend by 66.70% to $1.75/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow the dividend at an annual rate of 19.30%. Between 2008 and 2018, earnings per share skyrocketed from $1.06 to $26.92. The stock seems overvalued at 27.90 times earnings and yields 0.20%. TPL has done very well for its shareholders over the past decade. TPL has also done well for shareholders with a really long-term orientation in the past, due to its consistent share buybacks and dividends. While I do not know if the next decade will generate much in returns, it is possible that the next 40 years could be profitable. This is a stock where it has historically paid to buy a share, and forget about it.

Old Republic International Corporation (ORI) engages in the insurance underwriting and related services business primarily in the United States and Canada. The company operates through three segments: General Insurance Group, Title Insurance Group, and the Republic Financial Indemnity Group Run-off Business. The company raised its quarterly dividend by 2.60% to 20 cents/share. This marked the 39th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow the dividend at an annual rate of 1.50%. The slow growth is understandable, given the lack of earnings growth since the end of 2005. The company is expected to earn $1.87/share in 2019. While it looks cheap at 11.20 times forward earnings and has a dividend yield of 3.80%, I do not like the lack of EPS growth for such a long time.

Sempra Energy (SRE) invests in, develops, and operates energy infrastructure, as well as provides electric and gas services in the United States and internationally. The company raised its quarterly dividend by 8.10% to 96.75 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to grow the dividend at an annual rate of 10.20%. Between 2008 and 2018, earnings per share went from $4.44 to $3.41. The company is expected to earn $6/share in 2019. The stock is overvalued at 20.30 times forward earnings and offers a dividend yield of 3.20%.

Telephone and Data Systems, Inc. (TDS) provides wireless, cable and wireline broadband, TV, voice, and hosted and managed services in the United States. It operates through three segments: U.S. Cellular, Wireline, and Cable. The company raised its quarterly dividend by 3.10% to 16 cents/share. This marked the 46th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow the dividend at an annual rate of 4.50%. Between 2008 and 2018, the company managed to grow its earnings from 74 cents/share to $1.17/share.

The company is expected to earn $1.09/share in 2019. The stock is overvalued at 29.50 times forward earnings and yields 2%. Given the high valuation, slow dividend growth and lack of earnings growth, I am not interested in buying the stock today.

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