3 Dividend Aristocrats With Growing Payments

A look at three names with recent dividend increase announcements

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Feb 23, 2022
Summary
  • Coca-Cola offers a fairly high yield and 60 years of dividend growth.
  • NextEra Energy's dividend has a CAGR north of 10% over the last decade.
  • Sherwin-Williams' has a very low payout ratio, likely meaning the company's four-plus decades of dividend growth will continue.
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A number of companies have announced dividend increases recently, but the ones that always stand out to me are the Dividend Aristocrats. These companies are S&P 500 members with at least a quarter century of growing dividends.

I will look at three names that have recently raised their dividends to see if they are also a good value at the current price.

Coca-Cola

First up is Coca-Cola Co. (KO, Financial), which is the largest beverage company in the world. The company’s products are severed more than 2 billion times per day around the globe, giving it an extensive reach that few, if any, competitors can match. Coca-Cola has a market capitalization of $266 billion and produced revenue approaching $39 billion in 2021.

On Feb. 17, Coca-Cola announced a 4.8% dividend increase for the upcoming April 1 payment. This extends the company’s dividend growth streak to 60 years, which also qualifies it as a Dividend King and is one of the longest streaks in the market. The company’s dividend has a compound annual growth rate of 5.7% over the last decade. This was the largest raise since 2018.

According to Yahoo Finance, Wall Street analysts expect the company will earn $2.46 per share in 2022. With a new annualized dividend of $1.76, Coca-Cola is projected to have a payout ratio of 72%. This compares to the 10-year average payout ratio of 74%, so the expected payout ratio isn’t too far off the long-term average.

Shares of the company yield 2.9%, which is twice that of the average yield of the S&P 500 Index, but slightly below the stock’s average yield of 3.1% since 2012.

Coca-Cola currently trades at 25.1 times expected earnings per share for the near term, a premium to the long-term average multiple of 21.4 times earnings.

The valuation looks better when using the GF Value Line.

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With a current share price of $61.58 and a GF Value of $58.25, Coca-Cola has a price-to-GF Value ratio of 1.06. Shares would decline 5.4% to reach their GF Value.

Coca-Cola is an iconic company with powerful brands and an extremely long history of rising shareholder distributions, which earns the stock a premium valuation. The larger-than-usual dividend increase was also nice and breaks a recent-term trend. Shares are pricey against the historical multiple, but fairly valued against the intrinsic value according to GuruFocus. Near or above its long-term average yield and I would consider adding more to my position in the company.

NextEra Energy

The next stock for consideration is NextEra Energy Inc. (NEE, Financial), one of the largest electric utility companies in the market. The company operates two rate-regulated electric utilities that serve 5.7 million customers in Florida. NextEra Energy also has a renewable energy business that is the largest in the world. The $143 billion company generates annual revenue in excess of $17 billion.

On Feb. 18, NextEra Energy announced it was raising its dividend 10.4% for the March 15 payment date, marking the company’s 27th consecutive year of dividend growth. This is very close to NextEra Energy’s dividend CAGR of 11% dating back to 2012.

The new annualized dividend totals $1.70 per share. With analysts predicting the company will earn $2.80 per share in 2022, NextEra Energy has an expected payout ratio of 61%. This isn’t too far off of the average payout ratio of 57% over the past decade.

NextEra Energy’s stock yields 2.3%, which is lower than its long-term average yield of 2.8%., but still superior to that of the market.

With shares trading hands at $72.75, NextEra Energy has a forward price-earnings ratio of 26. This is higher than the 10-year average multiple of 23.5 times earnings, but below the annual averages of each of the last three years

The GF Value Line also shows the stock is trading with a premium valuation.

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NextEra Energy has a GF Value of $64.28, giving the stock a price-to-GF Value ratio of 1.13. The stock would need to retreat nearly 12% to reach the GF Value. GuruFocus rates the stock as modestly overvalued.

NextEra Energy is blessed to operate in a growing market and a very large renewable energy business. These catalysts have allowed the company to grow its dividend at a double-digit clip without the payout ratio reaching a dangerous level. Shares aren’t cheap, but are below the last few years average valuations. I recently added to my position at a price just above the current level.

Sherwin-Williams

The last name is Sherwin-Williams Co. (SHW, Financial), which is the largest manufacturer of paints and coatings in North America. The company sells its products to customers through its wholesale business and its string of more than 5,000 company-owned stores. Sherwin-Williams is valued at $68 billion and has annual revenue of close to $20 billion.

It was announced on Feb. 16 that shareholders would receive a 9.1% dividend increase for the March 11 payment date. As result, Sherwin-Williams’ dividend growth streak is now 44 years. Growth has been robust over the years as the dividend has a 10-year CAGR of more than 17%. The size of the most recent raise isn’t as generous as in years past, but is still a solid increase. It also follows a 23.1% raise last year, so its not as if dividend growth has slowed completely in the near term.

Shareholders should see $2.40 of dividends per share this year. With analysts expecting earnings per share of $9.53, the payout ratio is projected to be just 25%. This is very close to the 10-year average payout ratio of 24%.

Shares yield just 0.9%. This is lower than the average yield of the S&P 500 Index, but in the vicinity of Sherwin-Williams’ decade-long average yield of 1.1%.

With the stock trading at $262.50, Sherwin-Williams has a forward price-earnings ratio of 27.5. The stock has often enjoyed a premium valuation, but the current multiple is ahead of the long-term average of 23.

That said, the stock appears to be trading very close to its intrinsic value according to the GF Value Line.

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Sherwin-Williams has a GF Value of $257.71, giving the stock a price-to-GF Value ratio of 1.02. A small pullback would need to take place for the stock to reach its intrinsic value. Shares are rated as fairly valued.

Sherwin-Williams has a leading position in its industry and wide scale reach that most competitors cannot replicate. The company has enjoyed a successful existence due to this, with the dividend being raised more than four decades as a result. Sherwin-Williams’ valuation is richer than its historical average, but looks fairly valued using its intrinsic value. This could tempt investors who have been waiting to establish a long position in the name.

Final thoughts

Dividend increases mean more income for investors. Coca-Cola, NextEra Energy and Sherwin-Williams are three companies that have recently announced their intentions to raise their dividends. Each name does trade ahead of its long-term valuation, but only modestly above its GF Value.

All three companies are also members of the Dividend Aristocrats and have seen their distributions grow through several recessions and the worst of the Covid-19 pandemic.

For investors looking for quality names with safe dividends that can more than survive difficult operating environments, Coca-Cola, NextEra Energy and Sherwin-Williams could be solid additions to their portfolios.

Disclosures

I am/ we are currently short the stocks mentioned. Click for the complete disclosure