There were several companies over the past week which announced their intent to raise dividends to shareholders. It is always great to see companies that are able to extend their long streaks of annual dividend increases. I find dividend increases to be a good indicator of how company executives feel about the near-term business environment. It also shows their confidence in the company’s growth prospects.
I review these press releases as part of my monitoring process. For the purposes of this article, I narrowed the list of dividend increases down to a more manageable level.
I focused on companies that can afford to grow dividends for at least a decade. I figured that a company which has managed to boost dividends during a recession and an expansion, or even longer, is better suited for further research by a long-term dividend growth investor like me.
In my previews, I look at the most recent dividend increase and compare it to the ten year average. While there are some year-over-year fluctuations in dividend growth, it is helpful to see if dividend growth is decelerating.
In addition, it is helpful to review trends in earnings and dividends, alongside dividend payout ratios. This is another indicator of dividend safety.
Last, but not least, I also try to review the valuation behind every company. I prefer to buy future dividend income at attractive valuations; overpaying for future dividend income is not a good business decision.
The companies that raised dividends last week include:
Hormel Foods Corporation (HRL) produces and markets various meat and food products in the United States and internationally. The company operates through five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. The company raised its dividend for the 53rd year in a row. The dividend king raised distributions by 12% to 21 cents/share. Over the past decade, it has managed to boost distributions by 16.30%/year. Between 2008 and 2018, the company has managed to grow earnings from $0.52 to $1.86/share.
Currently, the stock is overvalued at 24.60 times earnings and yields 1.80%. Hormel may be worth a second look on dips below $37/share.
Becton, Dickinson and Company (BDX ) develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products worldwide. It operates in two segments, BD Medical, and BD Life Sciences. The company raised its quarterly dividend by 2.70% to 77 cents/share. This marked the 47th consecutive annual dividend increase for this dividend champion. Over the past decade, it has been able to grow dividends at an annual rate of 11.60%/year. Unfortunately, this is the second year in a row that Becton Dickinson has rewarded shareholders with a very small dividend increase.
Earnings have increased from $4.46/share in 2008 to an estimated $12.12/share in 2019.
Currently, the stock is fully valued at 20 times forward earnings and yields 1.30%. Given the slowdown in dividends per share and the high valuation, I view the stock as a hold for the time being.
The York Water Company (YORW) impounds, purifies, and distributes drinking water. It also owns and operates three wastewater collection systems and two wastewater treatment systems.
The company raised its quarterly dividend by 4% to 17.33/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. Over the past decade, it has been able to grow its dividend at a rate of 3.10%/year.
Between 2007 and 2017, earnings rose from $0.57/share to $1.01/share. The company is expected to earn $1/share in 2018.
The stock is overvalued at 32.50 times forward earnings and yields 2.10%. I may be interested in this business if it ever drops below $20/share. I may wait for a while.
South Jersey Industries, Inc. (SJI) provides energy-related products and services. The company engages in the purchase, transmission, and sale of natural gas. South Jersey Industries raised its quarterly dividend by 2.70% to 28.75 cents/share. This marked the 20th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to reward shareholders with an 8.40% annual dividend increase on average. The rate of dividend growth has been slowing over the past five years or so to roughly 5%/year. This is to be expected, given the fact that earnings per share only went from $1 in 2007 to an estimated $1.44/share for 2018.
The stock is overvalued at 21.80 times forward earnings. While the yield is pretty decent at 3.60% today, the forward dividend payout ratio is rather steep at 80%.
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 by 2.80% to 37 cents/share. This is the third dividend increase this year. The company routinely pays a special dividend in the fourth quarter. In addition to the regular quarterly dividend, the Bank’s Board of Directors announced that it will pay a special dividend of $0.50 per share.
Hingham Institution for Savings is a dividend achiever with a 20-year record of annual dividend increases.
Over the past decade, this bank has managed to grow its distributions at an annual rate of 5%/year. At the same time, the company has managed to boost earnings per share by 18.70%/year during the same time period.
The stock sells for 17.90 times earnings and yields 0.70%. While I would not buy the stock today, I will hold on to it for the time being. This investment is a great case study for me because it ended up disappointing on the dividend growth part. However, it did spectacularly well in terms of earnings per share growth and total returns.