I review the list of dividend increases every week, as part of an effort to monitor my holdings and review promising companies in action. I usually focus on the companies with a minimum ten years of annual dividend increases. I then narrow the list down to companies which are raising distributions by more than a token amount.
After that, I review the trends in earnings, dividends/distributions, and decide whether a company is worth it for further research or not. Reasons for not recommending myself to do further research on a company also involves high valuations.
This exercise is helpful for my monitoring process, since it provides me with the discipline to go out and do the monitoring work.
Over the past week, there were five of companies that met the above mentioned requirements and raised dividends last week.
The companies, along with my commentary are listed below:
Clorox Co (NYSE:CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Cleaning, Household, Lifestyle, and International.
Clorox raised its quarterly dividend by 5% to 84 cents per share. This marked the 40th consecutive annual dividend increase for this dividend champion. Over the past decade, Clorox has managed to raise dividends at a rate of 10.50% per year.
The rate of dividend growth has been slowing down over the past decade however, as the payout ratio increased from 37% in 2007 to 63% in 2016.
Clorox grew earnings from $3.22 per share in 2007 to $4.92 per share in 2016. Clorox is expected to earn $5.32 per share in 2017. Given the slower rate of earnings growth, and the high payout ratio, I would imagine that future dividend growth will likely be in the range of 5% per year over the next decade.
CLX stock is overvalued at 24.80 times forwards earnings and yields 2.50% today. I would be interested in Clorox at 20 times earnings or lower. If you use last years earnings, the entry price should be below $98 per share. If you choose to go off the forecasted earnings for 2017, this would translate into an entry price below $106/share. Check my last analysis of Clorox for more information about the company.
Leggett & Platt, Inc. (NYSE:LEG) designs and produces various engineered components and products worldwide. The company operates through four segments: Residential Furnishings, Commercial Products, Industrial Materials, and Specialized Products.
Leggett & Platt raised its quarterly dividend by 5.90% to 36 cents per share. This marked the 46th consecutive annual dividend increase for this dividend champion. Over the past decade, Leggett & Platt has managed to raise dividends at a rate of 6.90% per year.
Leggett & Platt grew earnings from $1.57 per share in 2006 to $2.62 per share in 2016. Leggett & Platt is expected to earn $2.63 per share in 2017.
The volatile cyclical nature of Leggett & Platt’s earnings, and the routinely high payout ratios have been some of the reasons why I never initiated a position in the company. You cannot win them all.
Currently, LEG stock is fully valued at 19.70 times forward earnings and yields 2.70%. It may be a decent idea as long as the stock sells below $52/share.