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.
FactSet Research Systems Inc. (NYSE:FDS) provides integrated financial information and data analytical applications to the investment community in the United States, Europe, and the Asia Pacific. The company raised its quarterly dividend by 12% to 56 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever.
FactSet Research Systems has managed to raise dividends at a rate of 23.80% per year over the past decade. This was supported by growth in earnings per share from $2.14 in 2007 to $8.19 in 2016. The figure for 2016 should be adjusted downwards by $2.01 per share to $6.18 per share. This adjustment is a one-time gain related to sale of a business.
FactSet Research is expected to earn $7.28 per share in 2017. FDS stock is overvalued at 22 times forward earnings and yields 1.40% today.
FactSet Research looks like a textbook dividend growth stock that has high earnings and dividend growth, all of which fuels rapid growth in intrinsic value. I like the strong growth in profitability, as well as the opportunities for future earnings growth. I may take a second look at this company if it ever falls below $145 per share. Assuming nothing material changes in the business, it would be definitely a good opportunity below 20 times last years earnings ( $123/share or below).The business has a low yield today, which is why plenty investors may ignore it.
However, this is the type of business that has the potential for high future yields on cost and high potential for total returns, assuming it is purchased at the right price and the business growth continues. The business is highly competitive, which is why I do not want to buy a future growth potential at any price.
Connecticut Water Service Inc (NYSE: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.
Connecticut Water Service raised its quarterly dividend by 5.30% to 29.75 cents per share. This marked the 48th consecutive annual dividend increase for this dividend champion. It has a low ten year dividend growth rate of 2.70% per year. What caught my eye was the solid growth in earnings per share over the past decade, coupled with a decreasing dividend payout ratio. The company earned $1.05 per share in 2007 and managed to grow that to $2.08 per share by 2016. Connecticut Water Service is expected to earn $2.20 per share in 2017. The company seems well managed, and could grow organically and through acquisitions.
However, CTWS stock is fully priced a lot of future growth. It is selling at 24.10 times forward earnings, and yields 2.20%. I may take a closer look at Connecticut Water Service only if it dips below $42 per share. As usual, we do not want to overpay for future growth, since there is always the possibility that the future does not always turn out as expected in our spreadsheet projections.
Buckeye Partners, L.P. (NYSE:BPL) owns and operates liquid petroleum products pipelines in the United States. Buckeye Partners operates through three segments: Domestic Pipelines & Terminals, Global Marine Terminals, and Merchant Services. The partnership raised its quarterly distribution to $1.25 per unit. Buckeye Partners has rewarded limited partners with a raise for 22 years in a row.
Buckeye Partners managed to boost its distributions at a rate of 4.80%/year over the past decade. Currently, the partnership yields 7.40%.
Full Disclosure: Long CLX