Thursday, July 18, 2019

Nine Companies That Love To Raise Their Dividends

In today’s article, I will share a list of companies, which raised dividends last week. The list focuses on companies which have a ten year streak of annual dividend increases, and is part of my monitoring process. I review each dividend increase relative to the ten year average, in order to understand dividend growth consistency for the organization. I also review trends in earnings per share, in order to determine the likelihood of future dividend increases. Last but not least, I also review valuations. I have found that valuation is an important piece of the puzzle, which can show if you are about to lock in a high or low future rate of return on investments.

During the past week, there were nine dividend growth companies, which raised dividends to shareholders. The companies include:

Marsh & McLennan Companies, Inc. (MMC) is a professional services company, provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. It operates in two segments, Risk and Insurance Services, and Consulting. Marsh & McLennan Companies, Inc. increased the quarterly cash dividend from $0.415 to $0.455 per share. This marked the tenth consecutive year of annual dividend increases for this newly minted dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 7%.

Between 2009 and 2018, Marsh & McLennan managed to grow earnings from $0.42/share to $3.23/share. However, the company’s earnings have failed to grow on aggregate since 2003, despite the growth in the past decade. The company is expected to generate $4.58/share in 2019.
Currently, the stock is overvalued at 22.40 times earnings. The stock yields 1.80%.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company operates through four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.

Enterprise Products Partners L.P. increased the cash distribution paid to limited partners to $0.44 per common unit, or $1.76 per unit on an annualized basis.

This distribution, which represents a 2.3 percent increase over the distribution declared with respect to the second quarter of 2018, is the partnership’s 60th consecutive quarterly distribution increase. The partnership has increased distributions for 20 years in a row, which makes it a member of the elite list of dividend achievers. During the past decade however, it has managed to boost distributions at an annualize rate of 5.90%.

Currently, the partnership yields 5.80%. EPD is one of the few MLPs which have a 1.50 times coverage from distributable cash flows per share, which leaves some cushion on distribution safety. This also allows it to reinvest a portion of cashflows back into growing the business. MLPs are a little more complex around tax time, because distributions are not dividends and require the filling out of additional tax forms at the federal and state levels. That’s why some investors avoid the sector completely.

Cummins Inc. (CMI) designs, manufactures, distributes, and services diesel and natural gas engines, and powertrain-related component products worldwide. It operates in five segments: Engine, Distribution, Components, Power Systems, and Electrified Power.

Cummins Inc. increased the company's quarterly cash dividend by 15 percent to 1.311 dollars per share. This marked the 14th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, Cummins has been able to grow dividends at an annualized rate of 22.20%.
Between 2008 and 2018, Cummins managed to grow earnings from $3.85/share to $13.15/share. The company is expected to generate $16.21/share in 2019.

Cummins looks cheap at 10.60 times forward earnings. The stock yields an attractive 3.10% today. I just wanted to warn you that as a cyclical company, earnings are highest close to the top of the cycle, which makes the P/E lowest. Therefore, the stock tends to look cheapest on a P/E basis when things are great, while the stock would look overpriced when earnings decline during the next recession.

MSC Industrial Direct Co., Inc. (MSM), distributes metalworking and maintenance, repair, and operations (MRO) products in the United States, Canada, and the United Kingdom. MSC Industrial Direct raised its quarterly dividend by 19% to $0.75 per share. This marked the 16th consecutive year of annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow dividends by an annualized rate of 12%.

Between 2008 and 2018, the company has managed to grow earnings from $3.05/share to $5.80/share. The company is expected to earn $5.35/share in 2019.

Currently, the stock looks attractively valued at 13.60 times forward earnings. The stock yields 4.10%.

Duke Energy Corporation (DUK), operates as an energy company in the United States. It operates through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. The company declared a quarterly dividend of $0.945/share, a 1.90% increase from prior dividend of $0.9275. This marked the 15th year of annual dividend increases for this dividend achiever. Over the past decade, Duke has been able to boost annual distributions at a rate of 3%/year.

Between 2008 and 2018, the company’s earnings went from $3.24/share to $3.76/share. The company is expected to generate adjusted earnings per share in the $4.80 - $5.20/share range in 2019. In comparison, adjusted earnings per share for 2018 came up to $4.72/share. Therefore, I believe that 2019’s results will be only slightly higher. Fun fact – earnings per share haven’t increased much since the early 1990s, which is why Duke had to cut dividends in 2007. If earnings per share do not grow much in the future, Duke may have to cut dividends again, because there is limited room for dividend growth in the future.

The stock looks expensive using 2018 earnings per share of $3.76 – the P/E is at 23.60. The stock yields 4.30% today. I believe that Duke is a hold today, with dividends reinvested elsewhere.

Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

The company increased quarterly dividends to 45.75 cents per share, which is an increase of 4 percent. This marks the 44th consecutive year that this dividend champion has raised the dividend. The rate of dividend growth per the last increase is down considerably from the ten year average at 15%/year and the 5 year average at 7.30%/year. I can’t be complaining however, as rival CVS Health has kept dividends unchanged.

Between 2008 and 2018, Walgreen’s has been able to grow its earnings from $2.18/share to $5.05/share. The company is expected to earn $5.98/share in 2019, followed by a modest growth to $6.02/share in 2020.

Walgreen’s looks attractively priced at 9.30 times forward earnings and offers a dependable dividend yield of 3.30%. The slowing down of the dividend growth rate is something to monitor however, because it indicates that the business environment is cloudy enough, which explains the low growth in forward EPS estimates. Check my analysis of Walgreen's for more information about the company.

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 to 22 cents/share. This was a 2.30% increase from the last payment. However, the dividend was 10% higher than the payment done during the same time last year. Fastenal is a dividend achiever with a 20 year record of annual dividend increases under its belt.  Fastenal has managed to grow distributions at an annualized rate of 19.50% over the past decade.
The company has managed to grow earnings from $0.47/share in 2008 to $1.31/share in 2018. Fastenal is expected to earn $1.41/share in 2019.

The stock is slightly overvalued at 22 times forward earnings. It does offer a well-supported dividend yield at 2.80%. Fastenal may be worth a second look on dips below $28/share.

Occidental Petroleum Corporation (OXY), engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing.

Occidental Petroleum raised its quarterly dividend by 1.30% to 79 cents/share. Occidental has increased its dividend every year for 17 consecutive years. It has a ten year annualized dividend growth rate at 10.20%. However, dividend growth has been below 2%/year over the past three years.
Between 2008 and 2018, earnings per share declined from $8.31/share to $5.39/share.
The company is expected to generate $3.78/share in 2019.

The stock looks cheap at 13.80 times forward earnings. Occidental yields 6.10%. It does have a high forward payout ratio at 83.60% today, which is a little too high for my liking. The carnage in the oil sector since 2014 has destroyed the earnings records of many oil and gas companies.

Ryder System, Inc. ( R ) provides transportation and supply chain management solutions worldwide.
The company operates through three segments: Fleet Management Solutions (FMS), Dedicated Transportation Solutions (DTS), and Supply Chain Solutions (SCS). Ryder (R ) increased its quarterly dividend by 3.70% to 56 cents/share. This marks the 15th consecutive annual dividend increase for this dividend achiever. The latest dividend increase is lower than the ten year annualized rate of growth of 8.70%.

Between 2008 and 2018, Ryder has managed to boost earnings from $3.49/share to $5.17/share. The company is expected to generate $6.14/share in 2019.

Ryder is attractively valued at 9.40 times forward earnings and offers a dependable yield of 3.90%. The slowdown in dividend growth over the past two years indicates a management team which is getting nervous about near term business conditions.

Relevant Articles:

Walgreens Boots Alliance (WBA) Dividend Stock Analysis
Dividend Achievers versus Dividend Contenders & Champions
Three Dividend Achievers Distributing More Cash to Shareholders
How to read my weekly dividend increase reports

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