For dividend growth investors, the ex-dividend date is just as important as the payment date. Investors need to own a stock prior to its ex-dividend date to be entitled to the dividend payment.
This article will explore four stocks that will begin trading ex-dividend this week.
American Tower Corporation
With a market capitalization approaching $111 billion, American Tower Corporation (AMT, Financial) is one of the largest real estate investment trusts in the world. The trust focuses on owning, operating and developing properties such as wireless telecommunications and broadcast towers. American Tower's revenue has totaled $7.7 billion over the last year. Shares of the trust have gained almost 7% this year, which is better than the 3.9% return for the S&P 500.
American Tower raised its dividend by 3.6% for the upcoming Oct. 16 payment. The ex-dividend date is Friday, Sept. 25. The trust's dividend growth streak now stands at 10 years. The dividend has a compound annual growth rate, or CAGR, of 11.7% over the last five years.
The most recent dividend increase is below the annual rate, but this is a bit deceiving as the trust usually raises it dividend every quarter. Shareholders should receive at least $4.46 in dividends this year. This would be an 18% increase over last year's total.
American Tower is expected to produce funds from operation of $7.88 this year, according to analysts. This means that the projected payout ratio is 57%. For context, the average payout ratio since shareholders started receiving a dividend is 37%. The projected payout ratio is high relative to American Tower's historical average, but below that of most REITs.
The new annualized dividend of $4.56 results in a yield of 1.9% using Friday's closing price of $245.50. This is above the stock's average yield of 1.7% since 2012 and higher than the 1.8% average yield of the S&P 500.
Using the current share price and expected FFO for the year, the stock a forward price-FFO ratio of 31.2. The average price-FFO ratio for American Tower since 2010 is 23.
American Tower is an interesting stock as it is different than your traditional REIT. It operates in a niche space and has a leadership position in its sector. The dividend streak is on the young side, but a dividend increase for every quarter has led to high rates of growth on a year-over-year basis. That said, the valuation is high, which means I am on the sidelines for now. This is one stock to keep an eye on at a better price.
International Flavors & Fragrances
International Flavors & Fragrances (IFF, Financial) is a global leader in the manufacturing of flavor and fragrances. These products are then sold to consumer product manufacturers around the globe. Nearly two-thirds of sales come from the company's Taste segment, with Scent contributing the rest. Products are used in prepared foods, beverages, confectionery and tobacco products as well as perfumes, soaps and detergents. International Flavors & Fragrances trades with a market capitalization of $13.1 billion and produced revenue of $5.1 billion over the last 12 months. The stock has held up well in 2020, only losing 5% through Friday's close.
International Flavors & Fragrances raised its dividend by 2.7% for the payment scheduled for Oct. 5. The stock will trade ex-dividend on Wednesday, Sept. 23. This latest raise gives the company 18 consecutive years of dividend growth. The company has rewarded shareholders with a dividend raise to the tune of 11% annually since 2010. Growth has slowed somewhat in the past few years.
International Flavors & Fragrances should distribute $3.04 of dividends per share in 2020. Yahoo Finance tells us that analysts expect the company to produce $5.75 of earnings per share this year, which results in a projected payout ratio of 53%. The payout ratio has begun to climb in recent years as the 10-year average payout ratio is under 39%. This likely explains the lower than usual dividend growth. Still, the payout ratio remains quite manageable.
The new annualized dividend of $3.08 equates to a forward dividend yield of 2.5% using the most recent closing price of $122.54. Shares of International Flavors & Fragrances have not offered much in the way of income as the average yield is just 2% since 2010. The current yield, if averaged for an entire year, would be the highest average yield that International Flavors & Fragrances has offered in at least a decade.
Shares of International Flavors & Fragrances have a forward price-earnings ratio of 21.3. This is a premium to the stock's 10-year average price-earnings ratio of 19.3, but a discount to the five-year average price-earnings ratio of 22.3.
As with American Tower, International Flavors & Fragrances operates in a fairly niche industry, but maintains a leadership position. The stock's yield is superior to its long-term average and its dividend growth streak is solid. In addition, shares are somewhat undervalued compared to its short-term history. Investors who had been looking to buy the stock might find the current price an attractive entry point.
Medtronic PLC
Medtronic PLC (MDT, Financial) is a giant in the medical device industry as no other company in the world has a larger implantable biomedical device business. I've highlighted the name several times as I believe that the medical device sector will only continue to grow as populations age. Medtronic has a market capitalization of $114.6 billion and generated revenue of almost $28 billion over the last four quarters. Shares of the company are off by more than 5% for the year, but have gained almost 7% over the last month.
Investors wanting to receive the Oct. 16 payment will need to own the stock prior to Thursday, Sept. 24. Medtronic last raised its dividend for the distribution made on July 17. This raise was a 7.4% increase and gave the company its 43rd consecutive years of dividend growth. The company's dividend has compounded by 9.1% over the last decade, so the most recent increase is within shouting distance of the long-term average.
Medtronic should distribute a total of $2.28 this year. Wall Street analysts expect that the company will produce $4.04 of EPS in 2020, good for a projected payout ratio of 56%. This is a reasonable payout ratio, though it is elevated compared to the 10-year average payout ratio of 34% for Medtronic.
The annualized dividend of $2.32 results in a forward yield of 2.2% using the most recent close of $107.60. This matches the stock's decade-long average yield of 2.2%.
Medtronic's stock trades with a forward price-earnings ratio of 26.6. This is a significant premium to the 10-year average price-earnings ratio of 15.6. The five-year average multiple of 18.4 times earnings is still far below what the stock is currently valued at.
Medtronic's dividend growth streak is far and away the longest of the companies discussed in this article. The company's most recent increase is also in the same ballpark as its long-term average. While I continue to like the medical device industry, I don't like Medtronic's valuation as the stock sits just off of its 52-week high. At a lower price point, I would very much be interested in Medtronic.
Sempra Energy
Sempra Energy (SRE, Financial) is an electricity and gas utility operating in southern California. The company sells electricity mainly in San Diego County while providing gas to most of southern California. This gives Sempra Energy one of the largest utility customer bases in all of the U.S. The company also owns a majority stake in a transmission and distribution company in Texas and a nonutility subsidiary in Mexico. Sempra Energy had revenue in excess of $11 billion over the last year and has a market capitalization of nearly $35 billion. The stock has lost almost 21% during this year.
The company's next dividend payment will be made on Oct. 15 for those holding the stock prior to Thursday, Sept. 24. Sempra Energy typically raises its dividend for the first payment of the year. The most recent raise was 8%, which is close to the 10-year average raise of 9.5%. Sempra Energy has now raised its dividend for 17 years in a row.
Investors will likely receive $4.18 in dividends per share this year. Analysts expect EPS to be $7.59 for 2020, which results in a projected payout ratio of 55%. This is just below the 57% payout ratio that Sempra Energy has averaged since 2010.
Based off of Friday's close of $119.98, Sempra Energy has a dividend yield of 3.5%. This is a higher level of income than its 10-year average yield of 3.1%. Sempra Energy's average dividend yield has only been above 3% once since 2014 (2018).
Using the expected EPS and current share price, Sempra Energy has a forward price-earnings ratio of 15.8. This is a discount to the stock's 10-year average price-earnings ratio of 19.2. The discount widens when looking at the five-year average multiple, which is 22.3 times earnings.
Sempra Energy is the lone stock on this list to trade at a price-earnings ratio below its 10-year average. The stock also offers a yield that is much higher than it usually is. Investors looking for a utility company trade below its average valuation while offering a solid yield should consider buying Sempra Energy, in my view.
Final thoughts
American Tower, International Flavors & Fragrances, Medtronic and Sempra Energy all will trade ex-dividend this week, meaning that investors wanting to own any of these names need to purchase the stock very soon to receive the next dividend. All of these companies have solid dividend growth streaks going, especially Medtronic. However, American Tower and Medtronic are expensive against the historical averages. International Flavors & Fragrances offers a decent discount to its short-term average valuation and a higher than usual yield, but my favorite name on this list is Sempra Energy due to its large customer base, high yield and low valuation.
Disclosure: Author disclosure: the author does not have a position in any stock named in this article and has no plans to initiate a position in the next 72 hours.
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