The goal of every dividend investor is to generate a rising stream of sustainable dividend income. The growth in dividends protects the purchasing power of the income, and further turbocharges the compounding process in the accumulation phase. Not all dividend increases are created equal however, as they vary depending on size and sustainability. It is important to focus on growing income, but it is also important to focus on those companies that can sustainably pay distributions out of their growing earnings. Without growth in earnings, future dividend growth would eventually hit a ceiling. In addition, dividend investors should also refuse to purchase the rights to the future stream of dividends at any price.
If the investor manages to purchase quality dividend growth companies at fair prices after analyzing them individually, and puts them in a diversified income portfolio that is monitored regularly, they would greatly increase their odds of achieving their goals. Dividend stocks would therefore be the gift that keeps on giving for this investor, showering him with cash for years to come.
Over the past week, several dividend payers approved higher distributions for shareholders:
AT&T (T) provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. The company raised dividends by 2.20% to 46 cents per share. This marked the 30th consecutive dividend increase for this dividend champion. Over the past decade, AT&T has raised dividends by 5.20% per year.
Currently the stock trades at 13.90 times expected 2013 earnings and yields 5.40%. Given the deceleration of the dividend growth rate, and the increasing competition in the telecom markets, I am going to stay away from this one. This is not different than my stance on the company for the past five years. Check my analysis of AT&T.
Archer-Daniels-Midland (ADM) manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients; and processes oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company raised dividends by 26.30% to 24 cents per share. This marked the 39th consecutive dividend increase for this dividend champion.
Over the past decade, Archer-Daniels-Midland has raised dividends by 9.10% per year. Currently the stock trades at 19.40 times earnings and yields 2.30%. I like the company, and would like to add to my position on dips below $38.50/share. Check my analysis of ADM.
3M (MMM) operates as a diversified technology company worldwide. The company raised dividends by 34.60% to 85.50 cents per share. This marked the 56th consecutive dividend increase for this dividend king. Over the past decade, 3M has raised dividends by 6.60% per year.
Currently the stock trades at 20 times estimated 2013 earnings and yields 2.50%. It is nice to see another company that becomes a better dividend value in this otherwise overheated environment. Check my analysis of 3M.
Realty Income (O) is a publicly traded real estate investment trust that invests in commercial real estate markets of the United States. The company raised dividends to 18.217 cents per share. This dividend achiever has raised distributions since 1994.
Over the past decade, the REIT has raised dividends by 4.20% per year. Currently the stock trades at 15.70 times FFO and yields 5.50%. The increase in interest rates in a few years might lead to further declines in stock prices for REITs. As a long-term investor, I see some growth in distributions from Realty Income in the future fueled by acquisitions and rent increases. This makes this REIT a buy in my book. I recently sold some January 2015 at-the-money puts on the stock. Check my analysis of Realty Income.
CVS Caremark (CVS), together with its subsidiaries, provides integrated pharmacy health care services in the United States. The company raised dividends by 22.20% to 27.50 cents per share. This marked the 11th consecutive dividend increase for this dividend achiever.
Over the past decade, CVS has raised dividends by 18.80% per year. Currently the stock trades at 17.70 times estimated 2013 earnings and yields 1.60%. While the stock is below my minimum entry yield requirement, I would continue monitoring future developments at CVS.
General Electric (GE) operates as an infrastructure and financial services company worldwide.
The company raised dividends by 15.80% to 22 cents per share. This marked the 4th consecutive annual dividend increase for General Electric. The new dividend is still below the levels of 31 cents per share for shareholders, that was last seen in early 2009.
Currently the stock trades at 16.70 times estimated 2013 earnings and yields 3.30%. I plan on reviewing GE in more detail in the coming weeks, in order to determine if it is worthy of my investment dollars.
Urstadt Biddle Properties
Urstadt Biddle (UBA), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of commercial real estate properties in the United States. UBA raised dividends by 1% to 25.25 cents per share. This marked the 20th consecutive dividend increase for this dividend achiever.
Over the past decade, Urstadt Biddle Properties has raised dividends by 2% per year. Currently the REIT trades at 20 times FFO and yields 5.50%. I am generally not a fan of dividend growth companies that raise dividends simply to maintain a streak, but the nominal raises are below the rate of inflation. Despite the high current yield, I do not find the company worthy of further research.
Full Disclosure: Long O, MMM and ADM