Friday, April 3, 2020

Two Companies Escaping the Quarantine on Dividend Hikes

As part of my monitoring process, I review the list of dividend increases every week. With the current Covid-19 crisis, companies are conserving their resources, which means that there aren't many dividend hikes to report on. Most dividend declarations today are either keeping dividends unchanged, or announcing dividend cuts.

According to the dividend futures on S&P 500, dividend payments could fall by double digits by 2021, which is on par with the Global Financial Crisis. Not every sector will be affected however, and some of these dividend cuts are to be expected, because they are from cyclical companies that seldom achieve even a ten teary track record of annual increases. I am already seeing commodity producers and retailers cut or suspend dividends.

There were two companies with a long track record of dividend increases that raised distributions to shareholders last week. This is as slow as during the 2008 - 2009 crisis.  The companies include:

Hingham Institution for Savings (HIFS) provides various financial products and services to individuals and small businesses in the United States.

The company raised its quarterly dividend to 42 cents/share. This is a 2.40% increase over the dividend paid during last quarter, and a cool 10.50% increase over the dividend paid during the same time last year. The ten year annualized dividend growth is at 6.10%. This bank has managed to increase dividends for 25 years in a row. Because it tends to pay a special dividend along with the last dividend for the year, it doesn't get the credit it deserves from mechanical screeners on the Dividend Champion and Dividend Aristocrats lists. Actually, the latter will never include the company, because it is not large enough.

I liked the statement with their dividend increase: “Although economic conditions have been extraordinary and the near-term outlook remains uncertain, we remain intently focused on careful capital allocation, defensive underwriting, and disciplined cost control - the building blocks for compounding shareholder capital through all stages of the economic cycle. The Bank continues to produce strong operating returns on equity capital. These returns are the product of conservative underwriting, disciplined cost control, and careful capital allocation.  The Bank regularly considers all capital allocation options and continues to return capital to the ownership through both regular and special dividends.  This will be our 105th consecutive quarterly dividend and we have consistently increased regular quarterly cash dividends over the last twenty-five years.  The Bank has also declared special cash dividends in each of the last twenty-five years, typically in the fourth quarter.  The Bank sets the level of the special dividend based on the Bank’s capital requirements and the return on other capital allocation options.  This may result in special dividends, if any, significantly above or below the regular quarterly dividend.  Future regular and special dividends will be considered by the Board of Directors on a quarterly basis.”

Between 2010 and 2019, Hingham Instituion for Savings managed to grow earnings from $4.81/share to $17.83/share.

The stock sells for 8 times earnings and yields 1.60%.

Independent Bank Corp. (INDB) operates as the bank holding company for Rockland Trust Company that provides commercial banking products and services to individuals and small-to-medium sized businesses primarily in Massachusetts.

The company hiked its quarterly dividend by 4.50% to 46 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, it has managed to boost dividends at an annualized rate of 9%/year.

The company had a pretty neat statement alongside the dividend increase: “The current environment is unprecedented," stated Chris Oddleifson, Chief Executive Officer of Independent Bank Corp. "While current uncertainties pose formidable challenges, we remain confident in the underlying strength of our franchise and are pleased to reward our loyal shareholders with a dividend increase."

Between 2010 and 2019, the bank managed to increase earnings from $1.90/share to $5.03/share. It is expected to generate $5.03/share in 2020, but with the economy the way it is, I take all estimates with a huge grin of salt.

The stock sells for 12.50 times forward earnings and yields 2.95%.

Relevant Articles:

Dividend Achievers Offer Income Growth and Capital Appreciation
Three REITs Delivering Fresh Dividend Growth To Shareholders
Dividend Investing and Covid-19 Disruptions
Dividend Aristocrats List for 2020

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