Thursday, May 9, 2019

Eight Dividend Achievers Showering Owners With More Cash

As part of my monitoring process, I review the list of dividend increases every week. I missed doing this on Monday, so I am catching up.

For this review, I included companies with at least a ten year track record of annual dividend increases.  These are the so called dividend achievers. The select few which have at least a 25 year track record of annual dividend increases are the dividend champions.

I also reviewed each company, based on the criteria I use to evaluate investments. These criteria focus on fundamentals, growth and valuation. The companies that raised dividends over the past ten days include:

Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines.

The company raised its quarterly dividend by 19.80% to $1.03/share. This marked the 26th year of annual dividend increases for this dividend champion. Caterpillar has been able to boost its distributions at an annual rate of 7.70% during the past decade.

Between 2009 and 2018, Caterpillar managed to grow earnings from $1.43/share to $10.26/share. Caterpillar is expected to earn$12.32/share in 2019.

Right now Caterpillar is attractively priced at 10.70 times forward earnings and offers a current yield of 3.10%.

RLI Corp. (RLI) is an insurance holding company, which underwrites property and casualty insurance in the United States and internationally. The company raised its quarterly dividend by 4.60% to 23 cents/share. This marked the 44th consecutive year of annual dividend increases for this dividend champion. RLI Corp. has been able to boost its distributions at an annual rate of 6.10% during the past decade.

Earnings per share decreased between 2009 and 2018 from $2.16 to $1.43. RLI Corp is expected to earn $2.45/share in 2019.

Right now I find RLI Corp to be overvalued at 33.70 times forward earnings. The stock yields 1.10%.

Healthcare Services Group, Inc. (HCSG) provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments of nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates through two segments, Housekeeping and Dietary.

The company increased its quarterly dividend to 19.75 cents/share. This is a 2.60% increase over the dividend paid during the same time last year. Healthcare Services Group has managed to grow dividends every quarter for 63 quarters in a row. Over the past decade, this dividend achiever has managed to grow dividends at a rate of 7.20%/year.

Between 2009 and 2018, earnings increased from $0.46 to $1.12/share. The company is expected to earn $1.45/share in 2019.

The stock is overvalued at 23.50 times forward earnings and yields 2.40%.

International Business Machines Corporation (IBM) operates as an integrated technology and services company worldwide. Its Cognitive Solutions segment offers a portfolio of enterprise artificial intelligence platforms, such as analytics and data management platforms, cloud data services, talent management, and industry solutions.

IBM raised its quarterly dividend by 3.20% to $1.62/share, This marked the 24th year of consecutive annual dividend increases for Big Blue. Over the past decade, it has managed to boost dividends at an annual rate of 12.60%. Dividend growth is slowing down, because of low earnings growth, threats to the business model and increasing dividend payout ratio.

Between 2009 and 2018, IBM’s earnings per share declined from $10.01 to $9.52. IBM is expected to generate $13.91/share in 2019.

IBM is cheap at 9.90 times forward earnings, yields 4.70% and offers an adequately covered dividend. Given the lack of meaningful earnings growth over the past decade, the decline in revenues and the recent acquisition activity, I would expect future dividend growth to be more subdued. I am not interested in buying the stock today.

UGI Corporation (UGI) distributes, stores, transports, and markets energy products and related services in the United States and internationally. The company operates through four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities.

UGI hiked its quarterly dividend by 15.40% to 30 cents/share. This marked the 32nd consecutive annual dividend increase for this dividend champion. Over the past decade. UGI has been able to grow its dividends at an annual rate of 7.30%.

UGI managed to grow earnings from $1.57/share in 2009 to $2.74/share in 2018. The company is expected to generate $2.44/share in 2019.

The stock is overvalued at 21.80 times forward earnings and yields 2.30%.

Regal Beloit Corporation (RBC) designs, manufactures, and sells electric motors, electrical motion controls, and power generation and transmission products worldwide. It operates through three segments: Commercial and Industrial Systems, Climate Solutions, and Power Transmission Solutions.

The company raised its quarterly dividend by 7.10% to 30 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. The latest dividend increase was faster than the ten year average of 5.70%/year.

The stock is attractively valued at 12.70 times forward earnings and yields 1.50%.

Between 2009 and 2018, earnings increased from $2.63/share to $5.26/share. The company is expected to generate $6.42/share in 2019.

Costco Wholesale Corporation (COST) operates membership warehouses.

The company increased its quarterly dividend by 14% to 65 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. The latest increase is also in line with the ten year average increase of 13.40%/year. Between 2009 and 2018, the company grew earnings from $2.47/share to $7.09/share. Costco is expected to earn $7.96/share in 2019.

Costco is a great company I wish I owned. However, it is always available at a premium valuation. Today is no exception, as the stock sells at 30.30 times forward earnings and yields 1.10%. I will likely be a buyer below $160/share.

Leggett & Platt, Incorporated (LEG) designs and produces various engineered components and products worldwide. It operates through four segments: Residential Products, Furniture Products, Industrial Products, and Specialized Products.

The company raised its quarterly dividend by 5.30% to 40 cents/share. This marked the 48th consecutive annual dividend increase for this dividend aristocrat. The company has managed to boost its distributions at an annual rate of 4%/year over the past decade.

Between 2008 and 2018, Leggett & Platt managed to grow earnings from $0.73 to $2.26/share. The company is expected to earn $2.48/share in 2019.

The stock is attractive at 15.70 times forward earnings and a dividend yield of 4.10%.

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