Companies with a quarter-century of dividend growth tend to get the most publicity amongst the dividend growth community. And for good reason, as the names making up the Dividend Aristocrats and Dividend Champions indexes have proven their ability to raise dividends through all portions of the economic cycle.
But before a company can join either group, they have to start somewhere. We will examine three Dividend Contenders that have raised their dividends for at least 10 consecutive years and provide a yield that is superior to the average yield of the S&P 500 Index.
CMS Energy
CMS Energy Corp. (CMS, Financial) is a holding company that delivers electricity and gas to the lower Michigan region, excluding Detroit. In total, the company has 1.8 million gas customers and 1.8 million electric customers. CMS Energy has a market capitalization of $17.5 billion and generated revenue of $6.7 billion last year.
The company last raised its quarterly dividend by 6.7% to 43.50 cents for the Feb. 26 payment date. The most recent increase nearly matches the dividend’s compound annual growth rate of 6.9%. CMS Energy now has 15 consecutive years of dividend growth.
With an annualized dividend of $1.74, CMS Energy has a current yield of 2.9%, which is below the stock’s 10-year average yield of 3.3%. Today’s yield is nearly in line with the five-year average yield of 2.8%.
CMS Energy is expected to earn $2.85 in 2021 according to Wall Street analysts surveyed by Yahoo Finance. Using this estimate, the projected dividend payout ratio is 61%, nearly matching the average payout ratio of 62% since 2011.
Shares of CMS Energy are trading at $60.30 at the moment, giving the stock a forward price-earnings ratio of 21.2. This is a premium to the 10-year average multiple of 19.1 times earnings, but a slight discount to the five-year average multiple of 22.
CMS Energy is trading just above its intrinsic value as calculated by GuruFocus.
CMS Energy has a GF Value of $58.71, resulting in a price-to-GF Value of 1.03. Shares would need to decrease 2.6% to reach their GF Value. The stock receives a rating of fairly valued from GuruFocus.
It may not be the first utility company that income investors think of, but the stock has a solid dividend growth track record. The company began its dividend growth streak during the last recession and has rewarded shareholders with a solid mid-single-digit growth rate over the past decade. In an environment where the market index is yielding a little more than 1%, CMS Energy offers a compelling yield even if it is below its long-term average.
Cisco
Cisco Systems Inc. (CSCO, Financial) leads the world in high-performance computer networking systems, with the company responsible for nearly 80% of all of the data moved over the internet over the past three decades. The company is valued $226 billion and has produced revenue of $49 billion over the past four quarters.
Following a 2.8% raise for the April 28 distribution date, Cisco has extended its dividend growth streak to 11 years. The CAGR for the dividend is 28% over the last decade, but that includes the period where the company initiated its first payment. This allowed for high growth rates off of a low base. The growth rate has slowed to 8.6% over the past five years. The most recent increase was on the low end, but the company is still dealing with the impact of the Covid-19 pandemic in certain businesses. In this context, a lower increase seems prudent.
Shares of Cisco have an annualize dividend of $1.48, which equates to a yield of 2.8%. Unlike many technology names, Cisco has been a high yielder almost every year since the company began distributing dividends. The stock has an average yield of 3.1% and 2.7% over the past five- and 10-year periods.
The company is expected to earn $3.20 in fiscal year 2021 (which ends July 31). The projected payout ratio of 46% is very much in line with its five-year average payout ratio of 45% and only slightly ahead of its long-term payout ratio of 39%.
Shares trade hands at $53.37. Using analyst estimates, the stock has a forward price-earnings ratio of 16.7. The average price-earnings ratio is less than 13 over the past decade.
Cisco looks less overvalued when considering its GF Value.
Cisco has a GF Value of $48.91, giving the stock a price-to-GF Value of 1.09. Shares would need to fall almost 9% to trade with the GF Value. The stock is rated as fairly valued by GuruFocus.
Investors looking for income from the technology sector don’t have too many options to choose from. Those looking for a yield near 3% are even more out of luck. Cisco, however, does pay a fairly high dividend for a tech company and has a very reasonable payout ratio. The dividend is also supported by Cisco’s cash position of nearly $24 billion. This plus the company’s leadership position in its industry are the main reasons Cisco is one of the largest positions in my personal portfolio. The stock isn’t cheap, either on a historical basis or using intrinsic value, so I will likely be waiting for a pullback before adding more shares.
Corning
Corning Inc. (GLW, Financial) is a leading maker of specialty glasses that can trace its roots back to the invention of the light bulb. The company’s products are used in televisions and smart phones, among other end markets. Corning’s market capitalization is approaching $35 billion and the company had $11.5 billion in revenue last year.
The company increased its dividend 9.1% for the March 30 payment. The company’s dividend growth streak is now at 11 years. Corning initiated its dividend its dividend in 2007, doubled it the next year and held it steady until 2011, when the new dividend growth streak started. The last decade has seen an annual average increase of more than 14%, with the five-year growth rate falling slightly to 10.3%. The most recent raise is very close to the medium-term average.
Investors are receiving a 2.4% yield based on the annualized dividend of 96 cents and today’s share price. Today’s yield happens to match exactly to the stock’s average yield since 2011.
Analysts project that the company will earn $2.10 in 2021, giving Corning an expected payout ratio of 46%. This isn’t too far off the long-term average payout ratio of 44%.
Corning’s current share price is $40.53, which implies a forward price-earnings ratio of 19.3. This is a premium to the average multiple of 16.1 times earnings that the stock has traded with over the past 10 years.
The share price is also above Corning’s GF Value.
Corning’s GF Value of $37.96 gives the stock a price-to-GF Value of 1.07. Retreating to the GF Value would mean a decline of 6.3% from current levels. The stock is rated as fairly valued.
The company's dividend was tested almost immediately after being initiated in 2007. Though Corning didn’t raise its dividend for the next three years, it did not cut it either. That is a sign of strength to me. The dividend growth rate hasn’t slowed all that much in the time since as the increases have been of the high single to low double-digit variety almost ever since. Shares can be considered to be at least slightly overvalued against historical benchmarks and the GF Value, but Corning could be an intriguing prospect for investors looking for companies in a niche business.
