6 Pure Dividend Growth Stocks I Wish I Owned

Strong dividends and earning growth power these dividend players

   
6 Pure Dividend Growth Stocks I Wish I Owned

Dividend investing is often seen as a slow and boring method for making money. For a select few investors however, dividend investing has translated into financial independence. Retired investors typically purchase dividend paying stocks, and then enjoy the stream of dividend income every quarter, which is deposited in their accounts. This slow and steady method works well, and generates a return on investment in any market environment.

There are many dividend companies however, which not only pay dividends but also grow them out of their rising earnings. Furthermore, this rising earnings tide has led to market-beating total returns.

The perfect dividend growth stock is the one that grows earnings and dividends at a similar high pace, and whose current yield stays in a constant range. Over time, the growth in profitability makes the firm more valuable to investors, who push the stock price higher.

As a result, despite the growth in earnings and distributions and share prices, the shares seem to spot the same yield in the range mentioned above for new investors for extended periods of time. For earlier investors however, the rising dividends over time lead to increase in the yield on cost and total passive incomes to pretty impressive amounts.

Casey’s (NASDAQ:CASY), together with its subsidiaries, operates convenience stores under the Casey’s General Store name in 11 Midwestern states, primarily Iowa, Missouri, and Illinois. The company has raised distributions for 13 years in a row and over the past decade boosted them by 20.20% per year. Earnings per share have increased from 80 cents per share in 2003 to $3.07 by 2012. Analysts expect further EPS growth to $2.98 in 2013 and $3.41 in 2014. Currently, the stock is trading at 19.80 times earnings and yields 1.20%. Check my analysis of Casey’s.

Sigma-Aldrich (NYSE:SIAL), a life science and high technology company, develops, manufactures, purchases, and distributes various chemicals, biochemicals, and equipment worldwide. The company has raised distributions for 37 years in a row and over the past decade boosted them by 16.60% per year. Earnings per share have increased from $1.37 in 2003 to $3.80 by 2012. Analysts expect further EPS growth to $4.16 in 2013 and $4.46 in 2014. Currently, the stock is trading at 20.50 times earnings and yields 1.10%.

W.W. Grainger (NYSE:GWW) engages in the distribution of maintenance, repair, and operating supplies, as well as other related products and services for businesses and institutions primarily in the United States and Canada. The company has raised distributions for 41 years in a row and over the past decade boosted them by 15.60% per year. Earnings per share have increased from $2.50 in 2003 to $9.71 by 2012. Analysts expect further EPS growth to $11.75 in 2013 and $13.33 in 2014. Currently, the stock is trading at 23.90 times earnings and yields 1.40%.

Sherwin-Williams (NYSE:SHW) engages in the development, manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America, the Caribbean region, Europe, and Asia. This dividend champion has raised distributions for 35 years in a row and over the past decade boosted them by 10.10% per year. Earnings per share have increased from $2.29 in 2003 to $6.15 by 2012. Analysts expect further EPS growth to $7.81 in 2013 and $9.32 in 2014. Currently, the stock is trading at 27 times earnings and yields 1.20%.

Ecolab (NYSE:ECL) develops and markets programs, products, and services for the hospitality, foodservice, healthcare, industrial, and energy markets. This dividend achiever has raised distributions for 21 years in a row and over the past decade boosted them by 11.50% per year. Earnings per share have increased from $1.07 in 2003 to $2.41 by 2012. Analysts expect further EPS growth to $3.55 in 2013 and $4.12 in 2014. Currently, the stock is trading at 32.70 times earnings and yields 1.20%.

A. O. Smith (NYSE:AOS) engages in the manufacture and sale of water heaters and boilers to the residential and commercial markets primarily in the United States, Canada, and the People’s Republic of China. This dividend achiever has raised distributions for 19 years in a row and over the past decade boosted them by 7.20% per year. Earnings per share have increased from $1.20 in 2003 to $3.44 by 2012. Analysts expect further EPS growth to $3.45 in 2013 and $4.07 in 2014. Currently, the stock is trading at 21 times earnings and yields 1.10%.

Unfortunately the market has constantly overpriced these companies, except during the financial crisis. In addition, the current dividend yields on each of these companies leave much to be desired. The issue is that if the economy falls into recession, investors in these firms will have a lower margin of safety than an investor in McDonald’s (NYSE:MCD).

When stock prices fall, since the dividend portion of total returns is so low. This could be the best time to initiate positions in these firms however.

That being said, the best investments could be those that yield a lot, while growing earnings, dividends and share prices in the process. If investor’s expectations about earnings growth do not pan out as planned, at least they would be receiving a very good return in the form of dividends.

In the interest of full disclosure, I do own a few of these companies. Unfortunately, in the case of W.W. Grainger and Sherwin-Williams, these positions are super small, whereas in the case of Casey’s General Stores I have a half lot.

Full Disclosure: Long GWW, SHW, CASY


Article printed from InvestorPlace Media, http://investorplace.com/2013/03/pure-dividend-growth-stocks-i-wish-i-owned-casy-sial-shw-mcd-gww/.

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