5 Companies Rewarding Shareholders With a Dividend Increase

These companies recently raised their dividends. Which, if any, are a buy today?

Nov 30, 2020

Income-oriented investors like to own shares of companies with long track records of dividend growth. For these investors, annual dividend growth isn't a luxury, it's a necessity. We will look at five companies that just increased their dividend. The stocks discussed average more than 26 consecutive years of dividend growth.

Becton, Dickinson & Co.

Becton, Dickinson & Co. (BDX), or BD, is a medical device company composed of three segments: Medical, which includes devices used in medication management and delivery, Life Sciences, which includes diagnostic and preanalytical systems, and Interventional, which includes urology and critical care. BD has a market capitalization of $66.4 billion and generated revenue in excess of $17 billion in fiscal 2020 (the company's fiscal year ends Sept. 30).

On Nov. 24, BD increased its quarterly dividend 5.1% to 83 cents. BD has raised its dividend for 49 consecutive years. The dividend is payable Dec. 31 to shareholders of record at the close of business on Dec. 10. The company's dividend has increased with a compound annual growth rate of 6.8% over the past decade. The most recent raise is below this level, but still an improvement over the 2.6% and 2.7% increase that shareholders have received the two previous years.

Using Friday's closing price of $228.96 and the new annualized dividend of $3.32, shares of the company offer a yield of 1.5%. This is just below the stock's 10-year average yield of 1.6% according to Value Line. It is also below the 1.6% average yield for the S&P 500.

Analysts surveyed by Yahoo Finance expect earnings per share of $12.53 in fiscal 2021 for BD, which equates to a forward price-earnings ratio of 18.3. BD's stock has a 10-year average price-earnings ratio of 18.7, so shares are trading at a slight discount to their long-term average earnings multiple.

BD appears to be just below its intrinsic value according to GuruFocus.

GuruFocus estimates that BD has a GF Value of $247.25. Based off of the most recent closing price, the stock has a price-to-GF Value of 0.93, earning BD a rating of fairly valued. Shareholders could be in line to see a return of 8% were the stock to trade with its GF Value. Add in the dividend yield at this level and total returns would be greater than 9%.

BD has raised its dividend for almost five decades, something very few other companies can match. Health care is often a defensive sector as customers will seek out solutions to their health-related emergencies regardless of the economic environment. I find BD's business and dividend growth streak attractive enough that I find the stock a buy today, even if the total potential return is only in the high single-digits at the moment.

Cullen/Frost Bankers

Cullen/Frost Bankers Inc. (CFR, Financial) offers commercial and consumer banking services in Texas. The bank operates in two segments: Banking and Frost Wealth Advisors. The bank has 130 offices spread out over Texas with plans to open an additional eight. Cullen/Frost has a market capitalization of $5.5 billion today and posted revenue totals of $1.5 billion last year.

Cullen/Frost raised its quarterly dividend 1.4% to 72 cents on Nov. 25, giving the bank 27 consecutive years of dividend growth. The dividend is payable Dec. 15 for shareholders of record at the close of business on Nov. 30. Over the last decade, Cullen/Frost's dividend has increased with a CAGR of 4.6%.

The new annualized dividend of $2.88 gives the stock a 3.3% yield based off of Friday's closing price of $87.10. Cullen/Frost has averaged a dividend yield of 3% over the last 10 years, so the current yield is superior to the long-term average.

Cullen/Frost is expected to earn $4.99 this year, which results in a forward price-earnings ratio of 17.5 using the most recent close. The stock has an average price-earnings ratio of 15.7 since 2010, showing shares to be overvalued today.

That said, GuruFocus finds that shares of Cullen/Frost are actually below their intrinsic value.

The stock's GF Value is estimated at $104.43, which gives Cullen/Frost a price-to-GF Value of 0.83. GuruFocus assigns a rating of modestly undervalued to Cullen/Frost as a result. Shares would have to increase almost 20% to reach their GF Value.

Cullen/Frost's dividend yield and its lengthy growth streak are impressive, even if the size of the most recent raise was lower than usual. Shares are expensive compared to their historical average, but are likely trading below its intrinsic value. Investors looking for income from a regional bank with double-digit upside potential might find Cullen/Frost to be an appealing option.

HP Inc. (HPQ, Financial) was spun off from Hewlett Packard (HPE, Financial) on Nov. 1, 2015. HP specializes in manufacturing printers, printing supplies, workstations, computers and other related services. The company has a market capitalization of $30.6 billion. HP had $56.6 billion of revenue in fiscal 2020 (the company's fiscal year ends Oct. 30).

HP raised its quarterly dividend 10% to 19.38 cents on Nov. 24. Including the years it was part of Hewlett Packard, HP has increased its dividend for 10 consecutive years. The company has raised its dividend with a CAGR of 6.4% over the last four years, so the most recent increase could be interpreted as a bullish sign from leadership. The dividend is payable Jan. 6, 2021 for shareholders of record at the close of business on Dec. 9.

The new annualized dividend of 77.52 cents gives the stock a yield of 3.5% using the most recent closing price of $22.27. This is 40 basis points above the average yield of 3.1% that HP has had since becoming a standalone entity.

Analysts are expecting the company to produce earnings of $2.63 per share for fiscal 2021, giving HP a forward price-earnings ratio of 8.5. For context, the company has had an average multiple of 10.2 times earnings since being spun off.

Despite the discount to its average valuation, GuruFocus finds that HP is trading almost identical to its GF Value.

HP's GF Value is $22.33 today, giving it a price-to-GF Value of 1. The stock currently holds a fairly valued rating from GuruFocus.

HP has benefited from the transition to a work and learn-from-home environment due to the Covid-19 pandemic. The stock also offers a higher- than-usual yield. That said, shares appear to be trading extremely close to their intrinsic value. Income investors might find the yield attractive, but I would wait for a pullback before purchasing shares.

South Jersey Industries

South Jersey Industries Inc. (SJI, Financial) distributes natural gas to New Jersey and Maryland. Nearly half of revenue comes from residential customers and approximately a quarter from commercial customers. Industrial customers and electric generation contribute the remainder. South Jersey Industries has a market capitalization of $2.4 billion with annual sales of $1.6 billion.

South Jersey Industries announced on Nov. 23 that it was raising its quarterly dividend 2.5% to 30.25 cents, marking the 22nd consecutive year of dividend growth for the company. South Jersey Industries dividend has grown at an annual rate of 4.9% over the last 10 years. The dividend is payable Dec. 29 for shareholders of record at the close of business on Dec. 10.

The new annualized dividend of $1.21 gives shares of South Jersey Industries a 5.1% yield using the most recent closing price of $23.80. Shares have averaged a 3.4% yield over the last decade. For context, South Jersey Industries highest average yield since 2004 is 3.9% (2015). The current yield is considerably higher than what shareholders often receive.

Analysts who follow the company project South Jersey Industries to earn $1.56 per share in 2020, giving the stock a forward price-earnings ratio of 15.3. This is a discount to the stocks' 10-year average multiple of 20.7 times earnings. If averaged for a full year, this would be South Jersey Industries' lowest total since 2009.

As of Friday, shares of South Jersey Industries are below their intrinsic value.

GuruFocus gives the stock a GF Value of $25.94. Using the most recent closing price, South Jersey Industries has a price-to-GF Value of 0.92. This earns the stock a fairly valued rating. Shares would gain 9% from the most recent closing price were they to trade at this level. Factor in the dividend yield at the GF Value and shareholders could see a total return of almost 14% from South Jersey Industries.

York Water

The York Water Co.(YORW, Financial) is the oldest shareholder-owned regulated water utility in the U.S. The company has been in operation since 1816. Today, York Water has an average daily water availability of more than 35 million gallons in its estimated service territory of 201,000 people. Residential customers account for near two-thirds of revenues, with commercial and other contributing the rest. York Water is worth $600 million and had sales of $51.6 million in 2019.

On Nov. 23, York Water announced it was increasing its quarterly dividend 4% to 18.74 cents. The company has increased its dividend for the past 22 years, but has paid a continuous dividend for more than 200 years. The company has the longest record of consecutive dividend payments in the U.S.

The dividend is payable Jan. 15, 2021 for shareholders of record at the close of business on Dec. 31.

York Water's new annualized dividend of 74.96 cents represents a yield of 1.6% using Friday's closing price of $46.03. This is a full percentage point below the stock's 10-year average yield of 2.6%.

The company is expected to earn $1.25 per share this year, resulting in a forward price-earnings ratio of 36.8. Shares of York Water have typically traded with an elevated valuation, but shares are currently valued much higher than the 10-year average price-earnings ratio of 27.3.

York Water is expensive compared to its GF Value.

The stock has a GF Value of $38.83, which results in a price-to-GF Value of 1.19. This is considered modestly overvalued by GuruFocus. Shares would have to decline almost 16% from the current price to reach the GF Value.

As a dividend growth investor, I am impressed by York Water's ability to pay continuous dividends for as long as it has. That said, shares are incredibly rich. As such, I would pass on the stock.

Final thoughts

Recently, BD, Cullen/Frost, HP, South Jersey Industries and York Water all announced a dividend increase. Why none of the increases were especially large, they all raised the level of income investors will receive from these stocks going forward.

Of the names discussed here, Cullen/Frost and South Jersey Industries appear to have the most total return potential. Personally, I like BD as well given its leadership position in the health care sector. HP appears to be fairly valued. I would wait for a significant pullback before York Water despite its more than two centuries of dividend payments.

Disclosure: The author has no positions in any stocks mentioned in this article.