My retirement strategy is focused on building a dividend portfolio of high quality blue chips, which are reliable dividend payers. For my dividend portfolio, I look for companies which can regularly grow their dividends for years. A long record of dividend increases is an indication of a strong business model that produces reliable earnings, revenues and cash flows.
One of the ways I monitor my dividend portfolio holdings as well as the list of dividend growth stocks is by reviewing the list of dividend increases. I usually try to focus on companies that have raised dividends for at least a decade, when reviewing the rate of recent dividend increases.
I did this to come up with the list of dividend increases to review today:
Clorox Co (CLX) manufactures and markets consumer and professional products worldwide. The company operates through four segments: Cleaning, Household, Lifestyle, and International. The company raised its quarterly dividend by 3.90% to 80 cents per share. This dividend champion has been hiking dividends for 39 years in a row. The ten year dividend growth rate is 10.40%/year. The rate of dividend growth has slowed down considerably since 2013. Currently, the stock is overvalued at 26 times earnings and yields 2.50%. At this stage, I would not be adding to my position in Clorox. The company seems like a decent hold, where dividends are reinvested elsewhere. It would be more interested on dips below $100 per share.
Leggett & Platt, Inc. (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. The company raised its quarterly dividend by 6.25% to 34 cents per share. This marked the 45th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 7.30% per year.
However, the dividend growth has decelerated to 3.50% per year over the past five years. The stock is selling for 19.50 times earnings and yields 2.80%. I have not taken a deep dive into Leggett & Platt, mostly because trends in earnings per share always seemed to be all over the place. Given the 45 year record of regular dividend increases however, I should put on my list for a more detailed analysis.
Connecticut Water Services Inc (CTWS), together with its subsidiaries, operates as a regulated water company. The company operates through three segments: Water Operations, Real Estate Transactions, and Services and Rentals. The company raised its quarterly dividend by 5.60% to 28.25 cents per share. This marked the 47th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 2.20%/year.
However, the dividend growth seems to be accelerating slightly over the past few years. The stock is expensive, as it is selling for 23.10 times earnings and yields 2.30%. A low yield, coupled with low dividend growth and a high P/E ratio is not a winning combination when purchasing a company. On the other hand, I like the fact that water is one type of regulated industries where you have low risk of obsolescence. I am going to put the company on my list for further research, because I am always fascinated by boring industries with slow and steady returns, plus low risk of obsolescence and a regulated monopoly type business model.
Northrop Grumman Corporation (NOC), a security company, provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide. The company raised its quarterly dividend by 12.50% to 90 cents per share. This marked the 13th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 13%/year.
Northrop Grumman is an example of why conventional wisdom and popular opinion could be dangerous to your wealth building. The company’s revenues are down by a little over 22% over the past decade, while net income has climbed from $1.5 billion to $2 billion over that time period . As we all know, military spending by the US government has been cut due to budget constraints. At the same time, earnings per share have gone from $4.37 in 2006 to $10.39 in 2015 while dividends per share went from $1.16 to $3.10 during the same time period.
This excellence was achieved through share buybacks at the time where the stock has a lower valuation. That being said, I think that the stock is fully valued at 20 times forward earnings and a dividend yield of 1.70% today. Given the high valuation, I do not expect that buybacks at the present time will have the necessary impact that they had when the P/E was lower.
Full Disclosure: Long CLX