As part of my monitoring process, I review the list of dividend increases every single week. I usually focus on companies that have raised dividends for at least a decade, in order to narrow down the list of companies to review. In order to be successful at dividend growth investing, you need to identify companies that can grow earnings, dividends and intrinsic values over time, which you can also purchase at an attractive valuation. I write these reviews in order to educate dividend investors about the quick way I use to look at companies before deciding whether to pursue further research or to discard them for the time being.
The companies that raised dividends last week, include:
Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. The REIT raised its monthly dividend to 21.15 cents/share. Realty Income is a dividend achiever, which has rewarded shareholders with rising dividends for 23 years in a row.
W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The REIT raised its quarterly dividend to $1/share. W. P. Carey is a dividend achiever, which has rewarded shareholders with rising dividends for 20 years in a row. The REIT has a 10 year annual dividend growth of 8.10%/year. The strong distribution growth occurred as a result of the company’s conversion to REIT in 2012. FFO/share increased from $3.34/share in 2007 to $4.86/share in 2016. I would be surprised if annual dividend growth exceeds 3% - 4%/year over the next decade for W.P. Carey. Currently this dividend achiever yields 5.90% and is attractively priced at 14 times FFO.
Target Corporation (TGT) operates as a general merchandise retailer. The company raised its quarterly dividend by 3.30% to 62 cents/share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, the company has managed to boost dividends at a rate of 18.10%/year. Earnings per share rose from $3.33/share in 2008 to an estimated $4.23/share by 2017. The stock is attractively valued at 12.40 times forward earnings and yields 4.70%. Unfortunately, earnings per share have plateaued over the past four – five years. Target has been unsuccessful in growing abroad, and has not managed to open many new stores in the US as of recently. It has faced intense competition from offline stores and online competitors. The company is working hard to grow its online sales, which could provide some growth. On the other hand, that growth could come at the expense of profitability. The valuation is very compelling, and could result in decent returns for patient shareholders. Without further growth in earnings per share however, dividend growth will end in a few years. This is one of the reasons why I am not adding as much as I was three years ago. Check my analysis of Target for more information about the company.
United Technologies Corporation (UTX) provides technology products and services to building systems and aerospace industries worldwide. The company raised its quarterly dividend by an anemic 6.10% to 70 cents/share. This marked the 24th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost dividends at a rate of 10.80%/year. Earnings per share rose from $4.27/share in 2007 to an estimated $6.58/share by 2017. The stock is fairly valued at 18.30 times forward earnings and yields 2.30%. Earnings growth has been non-existent since 2012/2013 unfortunately. I believe that the company made a mistake selling its Sikorsky business to Lockheed Martin a few years ago. That being said, it is a good hold for long-term investors.
FedEx Corporation (FDX) provides transportation, e-commerce, and business services in the United States and internationally. The company raised its quarterly dividend by 25% 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 boost dividends at a rate of 14%/year. Earnings per share rose from $6.48/share in 2007 to an estimated $11.95/share by 2017. The stock is attractively valued at 17.60 times forward earnings and yields 1%.
HEICO Corporation (HEI), through its subsidiaries, designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally. The company raised its quarterly dividend by 11.10% to 8 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost dividends at a rate of 18.60%/year. Earnings per share rose from $0.48/share in 2007 to an estimated $2.05/share by 2017. The stock is overvalued at 34.80 times forward earnings and yields 0.30%. This high growth company is usually priced at a premium valuation. If the company hits some temporary roadblocks and is available at 20 times forward earnings or lower, it may offer a great opportunity to initiate a position.
Caterpillar Inc. (CAT) is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company raised its quarterly dividend by an anemic 1.30% to 78 cents/share. This marked the 24th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to boost dividends at a rate of 10.80%/year. Earnings per share rose from $5.37/share in 2007 to an estimated $4.12/share by 2017. The stock is overvalued at 26 times forward earnings and yields 2.90%. Given the high valuation, the lack of earnings growth over the past decade, and the high dividend payout ratio, I would not be interested in Caterpillar at this time. The company is in a cyclical industry, which makes the dividend less reliable for retirees. I analyzed the company several years ago, when it’s share price was slightly lower than today, but had a single digit P/E ratio. It is helpful to learn that not all P/E ratios are created equal.
National Fuel Gas Company (NFG) operates as a diversified energy company. The company operates in five segments: Exploration and Production, Pipeline and Storage, Gathering, Utility, and Energy Marketing. The company raised its quarterly dividend by 2.50% to 41.50 cents/share. This marked the 47th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost dividends at a rate of 3.10%/year. Earnings per share rose from $2.36/share in 2007 to an estimated $3.26/share by 2017. The stock is a little richly valued at 18.30 times forward earnings and yields 2.80%. The company is growing earnings and dividends at a steady, but extremely slow pace. I would consider National Fuel Gas Company on dips below $40/share. For a slow grower, it would be helpful to get a better starting yield in 4% - 5% range.
Full Disclosure: Long WPC, O, UTX, TGT
Relevant Articles:
- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Champions - The Best List for Dividend Investors
- How to read my weekly dividend increase reports
- Dividend Kings List for 2017
- How to value dividend stocks
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