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Seven Dividend Stocks Boosting Distributions
Posted by: Dividend Growth Investor (IP Logged)
Date: November 12, 2012 07:14AM
Every week I screen the list of companies that announced dividend hikes. I typically look at the strength and consistency of dividend increases either from stocks I might be interested in researching further or from dividend growth stocks that I am noticing for the first time. There were 52 companies announcing dividend increases over the past week. I have highlighted companies which have raised distributions for nine years, and yielded close to my 2.50% entry yield requirement. In addition to that, I have added my commentary behind each dividend increase.
Emerson Electric Co. (EMR) operates as a diversified technology company worldwide. The company raised its quarterly dividend by 2.50% to 41 cents/share. This dividend king has raised distributions for 56 years in a row. Yield: 3.30% (analysis)
Over the past decade, the company has managed to raise distributions by 6.40%/year. The company is attractively valued, as it is trading at 14 times 2013 earnings. I was planning on adding to my position there, but the slow rate of distribution increases over the past few years are making me to reconsider that. I would rate the company as a hold right now.
AT&T Inc. (T), together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide. The company raised its quarterly dividend by 2.30% to 45 cents/share. This dividend champion has raised distributions for 29 years in a row. Yield: 5.40% (analysis)
Over the past decade, the company has managed to raise distributions by 5.30%/year. In most recent years however, the rate of dividend growth has slowed to 2%/year. Given the slow growth in earnings and high dividend payout ratio, I do not foresee much in future dividend growth going forward. Many retired investors are holding on to AT&T due to its high yield. The stock has also been bid up in the current low interest rate environment, mostly from yield-hungry investors. I would rate the company as a hold for now.
Universal Corporation (UVV), through its subsidiaries, operates as a leaf tobacco merchant and processor worldwide. The company raised its quarterly dividend by 2% to 50 cents/share. This dividend champion has raised distributions for 42 years in a row. Yield: 4.20% (analysis)
Over the past decade, the company has managed to raise distributions by 4.10%/year. It is attractively valued at 9.10 times earnings and the dividend payout ratio is only 38%. The big concern is that company’s business is deteriorating, as I had outlined in an earlier article. Given the grim prospects for Universal’s future profitability, it is no wonder shares are trading at such a discount.
Vectren Corporation (VVC), through its subsidiaries, provides energy delivery services to residential, commercial, and industrial and other contract customers in Indiana and west central Ohio. The company raised its quarterly dividend by 1.40% to 35.50 cents/share. This dividend champion has raised distributions for 53 years in a row. Yield: 4.90%
Over the past decade, the company has managed to raise distributions by 3%/year. This is mostly due to the fact that EPS have been stuck in a range over the past decade, without much in sustainable growth. As a result, future dividend increases would likely be contained at a rate of 2%/year for the foreseeable future. While the high yield is appealing now, the wealth destroying powers of inflation would reduce purchasing power of this income stream over time. This stock is a decent hold however, and the dividend payout of 71% is in the low range for a utility.
Microchip Technology Incorporated (MCHP) engages in the development, manufacture, and sale of semiconductor products for embedded control applications. The company raised its quarterly dividend to 35.20 cents/share. This dividend achiever has raised distributions for 11 years in a row. Yield: 4.60%
Microchip is overvalued at 29 times earnings, and has a dividend payout ratio above 100%. I would stay away from this company for now.
Utah Medical Products, Inc. (UTMD) produces medical devices for the healthcare industry primarily in the United States and Europe. The company raised its quarterly dividend by 2.10% to 24.50 cents/share. This dividend stock has raised distributions for 9 years in a row. Yield: 2.80%
Over the past five years, the company has managed to raise distributions by 3.90%/year. Utah Medical Products is attractively valued at 13.20 times earnings, has a sustainable dividend payment and has managed to increase earnings over the past decade at a nice clip. I like the company’s prospects for future growth, and the only thing that puts me off the stock is the low dividend growth. I would continue monitoring the situation.
Atmos Energy Corporation (ATO), together with its subsidiaries, engages in the distribution, transmission, and storage of natural gas in the United States. The company raised its quarterly dividend by 1.40% to 35 cents/share. This dividend champion has raised distributions for 25 years in a row. Yield: 4.10%
Over the past decade, the company has managed to raise distributions by 1.60%/year. The dividend growth at Atmos Energy is not sufficient to even compensate shareowners for the effects of inflation. This is particularly interesting, given the fact that earnings per share increased from $1.45 in 2002 to $2.11 in 2012. The dividend payout ratio is at 59%, which is low for a utility. The company is attractively valued, trading at 15.10 times earnings. I would research the company further in a future stock analysis.
The list was dominated by companies which boosted dividends at a very slow pace. Nevertheless, this is an important exercise for me, as I was able to identify a company where I might end up refraining from adding to my position (EMR). In addition, I uncovered a position where I might even end up liquidating my position, as I do not foresee much growth in EPS or distributions (UVV). I also uncovered two stocks ((ATO) and (UTMD)), where companies have the ability to boost distributions, but for some reason have not done so. These require further research and monitoring on my part.
Full Disclosure: Long EMR and UVV
Stocks Discussed: EMR, T, UVV, VVC, MCHP, UMTD, ATO,