For dividend growth investors, the ex-dividend date is just as important as the dividend payment date. Investors need to own shares of the company prior to the ex-dividend date in order to be entitled to the next dividend.
In this article, we will look at four companies with an ex-dividend date coming up in the next week. Each of the stocks discussed in this article have at least 25 years of dividend growth, qualifying them as Dividend Aristocrats.
Automatic Data Processing
- Ex-Dividend Date: June 11
- Dividend Payment Date: July 1
- Current Dividend Yield: 2.3%
- Years of Dividend Growth: 44
With more than 700,000 customers, Automatic Data Processing (ADP, Financial) is one of the leading providers of business services in the world. The company provides human resource outsourcing solutions, including payroll, benefits, HR management, workforce management and retirement services. Automatic Data Processing has a current market capitalization of nearly $69 billion.
The company raised its dividend by 15.2% for the payment made on Jan. 1. For context, Automatic Data Processing has increased its dividend with a compound annual growth rate of 8.6% since 2010 and 9.4% since 2015. The stock’s yield is 40 basis points higher than the average yield of the S&P 500. Shares have traded with an average yield of 2.7% since 2010. With an annualized dividend of $3.64 and Wall Street analyst estimates of $5.74 in earnings per share for the full year, the payout ratio is 63%. This is just above the 10-year average payout ratio of 59%.
Shares closed Friday’s trading session at a price of $160.13. Using earnings estimates for the year, shares have a forward price-earnings ratio of 27.9. This is a premium to the average price-earnings ratio of 22.9 for the S&P 500. This is also higher than the stock’s 10-year average price-earnings ratio of 22.6.
Averaging over the past five years, however, gives an average price-earnings ratio of 26.7. While shares are expensive, they are less expensive when looking over the more recent term. Automatic Data Processing is a leader in its sector of the economy, but shares appear pricey, so I would prefer to stay on the sidelines for now.
Albemarle Corporation
- Ex-Dividend Date: June 11
- Dividend Payment Date: July 1
- Current Yield: 1.8%
- Years of Dividend Growth: 26
No other company in the world produces as much lithium as Albemarle Corporation (ALB, Financial). The company is also the second largest producer of bromine in the world. Lithium demand has exploded in recent years, with more than 50% of the mined mineral worldwide now being used for battery production. Lithium has also been used to control manic-depressive disorders. Bromine is used in multiple areas, including agricultural chemicals, insecticides, flame retardants and pharmaceuticals. Albemarle has extremely low-cost assets in Chile, but the company also has operations in more than 100 countries around the globe. The company has a market capitalization of just under $9 billion.
Albemarle is a recent addition to the Dividend Kings list and last raised its dividend by 4.8% for the April 1 payment. The company’s dividend has increased at an annual clip of 10.3% over the last decade, but just 5% per year since 2015. The most recent increase is very much in-line with the five-year average. The stock offers a dividend yield of 1.8% today, which is better than the decade's average yield of 1.5%. Albemarle’s annualized dividend is $1.54, which would account for 44% of predicted EPS of $3.51 for the year. The company’s average payout ratio has been 27% since 2010.
Shares of Albemarle trade at a price of $84.31, which equates to a forward price-earnings ratio of 24. This is higher than the average valuation of the market at the moment and significantly higher than the stock’s 10-year average price-earnings ratio of 18.1. This average includes two years (2014 and 2017) where the multiple was higher than 29.5. Removing these two years drops the average price-earnings ratio to 14.2.
Albemarle has a leadership position in the production of lithium and bromine. The company’s dividend growth streak is impressive, especially given that it operates in a niche business. On the other hand, the yield is below that of the S&P 500 and the current valuation is expensive compared to the stock’s history. I would prefer to own the stock at a much lower valuation.
The Coca-Cola Company
- Ex-Dividend Date: June 12
- Dividend Payment Date: July 1
- Current Yield: 3.3%
- Years of Dividend Growth: 58
The Coca-Cola Company (KO, Financial) is the leading international provider of beverages, with more than 500 non-alcoholic brands. Coca-Cola is one of the most recognizable brands in the world and a member of the Dow Jones Industrial Average. Each day, consumers around the globe drink approximately 2 billion servings of the company’s products. Coca-Cola has a market cap of $211 billion today.
There are very few companies with a longer streak than Coca-Cola’s nearly six decades of dividend growth, which has earned the company the Dividend King status. The company gave investors a 2.5% dividend increase for the April 1 payment. This compares unfavorably to the five and 10-year dividend growth rates of 3.9% and 6.2%, respectively. Dividend growth is slowing down, but investors are being paid a 3.3% dividend yield at the moment. The stock has an average yield of 3% over the last 10-years. In addition, Coca-Cola has only averaged a yield higher than it currently offers for an entire year once (in 2018) since 2010. Consensus estimates call for $1.87 of EPS for 2020. This gives Coca-Cola a payout ratio of 88%. The 10-year average payout ratio is 67%.
Coca-Cola closed the most recent trading session at a price of $49.09, giving the stock a forward price-earnings ratio of 26.3. This is a premium to the 10-year average multiple of 19.6.
Dividend growth for Coca-Cola is slowing down, which is likely prudent due to the high payout ratio. Investors likely won’t see more than a nominal dividend increase until EPS improves. The stock is also more expensive than just about any other point over the last decade, but the dividend yield is near the high end of its range since 2010. Value investors will likely want to avoid the stock, but income investors should note that shares of Coca-Cola rarely trade with a yield above its current offering.
Leggett & Platt, Inc.
- Ex-Dividend Date: June 12
- Dividend Payment Date: July 15
- Current Yield: 4.3%
- Years of Dividend Growth: 48
Leggett & Platt, Inc (LEG, Financial) designs and produces engineered components and products. The company’s portfolio includes bedding products, furniture, flooring, industrial sewing machines, specialty foams and automotive seat support systems. Leggett & Platt has a current market cap of $4.9 billion.
Leggett & Platt has a dividend growth streak approaching five decades, which would grant the company entrance into the Dividend Kings. Dividend growth has compounded at a rate of 4.1% since 2010 and 4.6% since 2015. Leggett & Platt last raised its dividend by 5.3% for the July 15, 2019 payment. It should be noted that the company typically raises its dividend for the July payment, but did not for the upcoming dividend payment date. The current yield of 4.3% is superior to the long-term average yield of 3.8%. With an annualized dividend of $1.60 and expected EPS of $1.24 for the year, Leggett & Platt has a payout ratio of 129%. This compares unfavorably to the average payout ratio of 70% over the last 10 years. While a payout ratio above 100% likely isn’t sustainable, it should be noted that Leggett & Platt had similar payout ratios during the last recession and was still able to raise its dividend.
The stock closed the most recent trading session at a price of $37.15. Based off of expected EPS, Leggett & Platt’s forward price-earnings ratio is almost 30. This is much higher than average multiple of 18.6 over the last decade.
Leggett & Platt offers an attractive dividend yield and an expensive valuation. Leggett & Platt’s ability to raise its dividend through multiple recessions in a positive point in the company’s favor and helps remove some of the worry regarding the payout ratio. Still, only investors with a higher tolerance for risk should consider the name at the moment.
Final thoughts
The four Dividend Aristocrats discussed in this article will begin trading ex-dividend this week. This means that investors looking to open or add to their position will need to do so prior to this date in order to get the next dividend. While each name listed can be considered expensive relative to its respective history, those investors focused primarily on income may find the current yields attractive.
Personally, even with its valuaton, I think Coca-Cola looks attractive near the high end of its dividend range over the last 10 years. Automatic Data Processing has long been on my watchlist due to its leadership position, but I would only be a buyer on a pullback. On the other hand, I am avoiding Albemarle, with its expensive price-earnings ratio and low yield, as well as Leggett & Platt, with a payout ratio north of 100%.
Author disclosure: the author is long the Coca-Cola Company.
Read more here:
- Five Undervalued Stocks Yielding 5%
- Why Kimberly-Clark Is a Buy
- Toronto-Dominion's Yield and Valuation Make the Stock a Buy
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