Dividend growth investors rely on dividend increases in order to generate more income. This article will look at three stocks with a market capitalization of at least $100 billion that recently raised their dividends.
Accenture plc
Accenture plc (ACN, Financial) provides professional services, such as consulting, technology and outsourcing, to clients in a range of industries. Clients include those in the banking, media, healthcare and travel sectors, among others. Accenture is headquartered in Dublin, Ireland and is currently valued at nearly $137 billion.
Last week, Accenture announced a dividend increase of 10% for the Nov. 13 payment date. The ex-dividend date is Oct. 9. This is the 16th year in a row that Accenture has raised its dividend. The dividend has a compound annual growth rate of 10% over the last decade, so the most recent increase is very much in-line with the historical average.
Shareholders will receive $3.28 of dividends per share this year. According to analysts surveyed by Yahoo Finance, Accenture is projected to bring in earnings per share of $8.04 this fiscal year. This results in a projected payout ratio of 41%, which is only slightly higher than the 10-year average payout ratio of 38%. Accenture's dividend appears to be sufficiently covered with additional room for future increases.
Using the new annualized dividend of $3.52 and Friday's closing price of $214.63, the stock has a dividend yield of 1.6%. This is below the 10-year average yield of 2.1% and at the bottom of the yield range for the last decade. The yield is also below the average yield of 1.8% for the S&P 500.
Based off of the current share price and expected EPS for the year, Accenture has a forward price-earnings ratio of 26.7. This is a very high premium to the average price-earnings ratio of 18.3 that the stock has traded with since 2010. Even the five-year average price-earnings ratio is just over 21 and means the stock is more expensive as it has been in quite some time.
Accenture offers a solid dividend growth streak with a CAGR in the low double-digit range. However, the stock's yield is on the low side and its valuation is expensive. I would wait for a pullback before purchasing shares of the company.
Honeywell International
Even after spinning off non-core assets over the past few years, Honeywell International (HON, Financial) remains a diversified industrial company. Honeywell has four main segments: Aerospace, Building Technology, Safety & Productivity Solutions and Performance Materials & Technologies. The company is valued at more than $113 billion.
Honeywell announced on Friday that it would be raising its dividend payment scheduled for Dec. 4 by 3.3%. Investors need to own the stock prior to Nov. 13 in order to receive the payment. This gives Honeywell 10 consecutive years of dividend growth, though the most recent increase is far below the 10.8% CAGR that the company has had over the last decade.
Total dividends for 2020 will be $3.63 while analysts expect EPS of $6.87 for the year. The payout ratio of 53% is very manageable, even if it is above the 10-year average payout ratio of 37%.
Honeywell's new annualized dividend is $3.72, which is a 2.3% yield based off of the recent closing price. This is actually higher than the 10-year average yield of 2.2%.
Shares of Honeywell closed Friday's trading session at $161.49. Using expected EPS for the year, the forward price-earnings ratio is 23.5. For comparison, the 10-year average price-earnings ratio is 16.7, though the multiple has expanded in recent years. Analysts seem to believe that next year will be better for the company following an expected recovery from the pandemic. Analysts estimate that 2021 EPS will be $7.82, which gives a valuation more in-line with the three-year average of 19.3.
Honeywell's stock is expensive as the company has endured a difficult past few months. The company's businesses, especially Aerospace, are likely to perform much better in a more normalized business environment. Investors with a long-term horizon looking for an industrial company could do well owning Honeywell International, in my opinion.
Lockheed Martin Corporation
Lockheed Martin Corporation (LMT, Financial) is the largest defense contractor in the world. The company does most of its business with the U.S. Department of Defense, but also has a sizeable international business. Lockheed Martin supplies airplanes, helicopters, combat ships, missile defense systems and satellites to customers. The company has a market capitalization of $108 billion.
Shareholders will receive an 8.3% increase for the dividend payment scheduled for Dec. 24. Shares will trade ex-dividend on Nov. 30. The company has now raised its dividend for the past 18 years. The average annual increase was 13% over the last 10 years.
Shareholders will see dividends totaling $9.80 in 2020. With expected EPS of $24.17, the payout ratio for the year is projected to be 41%. This is lower than the average payout ratio of 28% since 2010. Lockheed Martin continues to reward shareholders with a solid dividend increase without having to jeopardize future growth.
Following the latest increase, the annualized dividend is $10.40. Using Friday's closing price of $386.70, shares yield 2.7%. This is below the 10-year average yield of 3.3%, but identical to the five-year average yield of 2.7%.
Based off of the current price and expected EPS, Lockheed Martin has a forward price-earnings ratio of 16. This is a small premium to the 10-year average price-earnings ratio of 15, but the stock looks attractively priced using the five-year average price-earnings ratio of 18.5.
Lockheed Martin has long been my favorite name to own in the defense sector due to its size and product offerings. The company's most recent increase was solid and the yield is in-line with the near-term average. The stock also remains cheap compared to its five-year average multiple.
Final thoughts
Accenture, Honeywell and Lockheed Martin are three large cap companies that recently rewarded shareholders with a higher dividend payment.
Accenture handed out the largest increase, but offers the lowest yield and highest valuation. The stock looks the most expensive of the companies discussed in this article.
Honeywell's business is under pressure from Covid-19, but provides a market beating dividend yield. The company's stock price will likely be a beneficiary of a recovery from the pandemic.
Of the three, Lockheed Martin offers the best yield and trades with the lowest valuation. Lockheed Martin is a stock I continue to add to when I can.
Author disclosure: the author is long Honeywell International and Lockheed Martin.
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