Last week saw a flurry of companies announce dividend increases. This pace is likely to quicken as we enter the home stretch of 2020 into the new year.
I want to highlight three companies that have all recently raised their dividend, but are likely not that well known to dividend growth investors. In addition to the recent dividend increase, each of these stocks trades at least 15% below their GF Value and could offer yields of up to almost 30%.
Hanover Insurance Group
Through its subsidiaries, The Hanover Insurance Group Inc. (THG, Financial) underwrites property and casualty insurance. This is done primarily through independent agents in the Midwest, Northeast and Southeast U.S. The company has a market capitalization of $4.3 billion and had revenue of nearly $4.6 billion last year.
Hanover Insurance announced it was increasing its quarterly dividend 7.7% to 70 cents on Dec. 3. The dividend is payable Dec. 30 for shareholders of record at the close of business on Dec. 18. According to the Dividend Investing Resource Center, the company has now raised its dividend for 16 consecutive years. Hanover Insurance's dividend has a compound annual growth rate of 9.4% over the last 10 years.
Using the new annualized dividend of $2.80 and the most recent closing price of $117.03, Hanover Insurance's yield is 2.4%. This matches the stock's long-term average yield exactly, but superior to the 1.6% yield of the S&P 500 index.
According to analysts surveyed by Yahoo Finance, Hanover Insurance is expected to earn $8.62 in 2020, which gives the stock a forward price-earnings ratio of 13.6. Since 2010, shares of the company have traded with an average price-earnings ratio of 17.2 according to Value Line. However, this includes one year (2012) where the average valuation was much higher than usual. Excluding this year, the average multiple since 2010 is 14.7 times earnings.
Hanover Insurance looks like a compelling purchase based on its GF Value.
With a GF Value of $149.74, Hanover Insurance has a price-to-GF Value of 0.78 based on Friday's closing price. The stock receives a modestly undervalued rating from GuruFocus today. The stock could rally as much as 28% from its most recent price if it were to trade at its GF Value. At this level, the dividend yield would be 1.9%, so total return potential is nearly 30% for Hanover Insurance.
Hanover Insurance has one of the higher dividend growth rates of all of the insurance stocks that I follow. The stock offers a yield identical to its 10-year average. Between share price gains and dividend yield, investors could see almost 30% returns for the stock. That's is a strong performance from what many would consider a rather boring industry.
Hillenbrand Inc. (HI, Financial) is the holding company for Batesville Casket Company, a leading provider of funeral services in North America. Products include burial caskets, cremation caskets, containers and urns as well as memorial products. The company also provides process and material-handling equipment for customers in the industrial sector. Hillenbrand trades with a market capitalization of $2.9 billion and generated $2.5 billion of revenue in its recently completed fiscal 2020.
Hillenbrand announced on Dec. 3 that it was increasing its quarterly dividend 1.2% to 21.5 cents. The dividend is payable Dec. 31 to shareholders of record at the close of business on Dec. 17. The company has now raised its dividend for 14 consecutive years. Hillenbrand has traditionally raised its dividend 1 cent per share per year over the last decade. This is why the CAGR for the stock's dividend is just 1.1% over this period of time.
With a new annualized dividend of 86 cents and the most recent closing price of $38.90, shares of Hillenbrand have a yield of 2.2%. This is lower than the stock's 10-year average yield of 2.8%.
Hillenbrand is expected to earn $2.85 per share in fiscal 2021. Based on the recent share price and expected earnings per share, the stock has a forward price-earnings ratio of 13.6. This is a discount to Hillenbrand's average price-earnings ratio of 16.7 over the last decade.
Hillenbrand looks very inexpensive compared to its GF Value
GuruFocus assigns Hillenbrand a GF Value of $47.44, which results in a price-to-GF Value of 0.82. This earns the stock a rating of modestly undervalued from GuruFocus. Reaching its GF Value would result in a 22% return from current levels. Add in the dividend yield, which would be 1.8% at the GF Value, and shareholders could be looking at a total return of almost 24%.
Hillenbrand is an interesting company. It operates in an industry (funeral services) that will always be needed. Investors looking for high levels of dividend growth will likely be disappointed by the company given that its raise is usually just a penny. Shares yield lower than usual, but the total return possibility is very enticing. Investors looking for a stock in a niche business could do well purchasing shares today.
Universal Health Realty Income Trust
Universal Health Realty Income Trust (UHT, Financial) is a real estate investment trust that specializes in purchasing, developing and leasing properties in the health care sector. The trust's property portfolio includes medical office buildings, acute care hospitals, rehabilitation hospitals and childcare centers, among others. The trust has approximately 70 total properties across 20 states. Universal Health has a market capitalization of $908 million. Revenue generated last year was slightly more than $77 million.
Universal Health announced on Dec. 2 that it was raising its quarterly dividend 0.7% to 69.5 cents. The dividend is payable Dec. 31 to shareholders of record on Dec. 17. The trust has now raised its dividend for 36 consecutive years, one of the longest growth streaks found in the REIT sector. Dividend growth has been slow over the last decade as the CAGR during this period of time is just 1.2%.
Universal Health closed Friday at $65.95. With a new annualized dividend of $2.78, the stock yields 4.2%. Though generous, this trails the stock's 10-year average yield of 5%.
The trust is expected to produce funds from operation of $3.35 this year, giving shares a forward price-FFO of 19.9. This is a slight premium to the price-FFO of 19.5 that shares have averaged since 2010.
However, GuruFocus believes that shareholders of Universal Health could see excellent returns from the stock were it to trade with its GF Value.
GuruFocus finds Universal Health's GF Value to be $76.49, which equates to a price-to-GF Value of 0.86 and earns the stock a rating of modestly undervalued. This is 16% above the most recent closing price. Including the yield of 3.6% at the GF Value, total returns could be just under 20%.
With a market capitalization of less than $1 billion, Universal Health is the smallest name on this list of stocks. That being said, shares offer a high yield and the trust has a long history of dividend growth even if the average increase is quite low. Universal Health is trading at just over its historical funds from operations multiple, but below its intrinsic value according to GuruFocus. Investors looking for a high yield and long track record of dividend growth could find Universal Health a solid option for purchase.
Hanover Insurance, Hillenbrand and Universal Health are three companies that rewarded shareholders with a dividend increase last week. These three relatively small names all have at least 14 consecutive years of dividend growth. Each stock is trading at or below its long-term average yield, but still tops the average yield of the market index. Each stock is presently priced at least 15% under its GF Value. Including dividends, each stock could see returns of up to almost 30% were they to trade with their GF Value.
Investors looking for under-the-radar stocks offering dividend growth and potential for high double-digit total returns should consider buying Hanover Insurance, Hillenbrand and Universal Health.
Disclosure: The author has no position in any stocks mentioned in this article.
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