As part of my monitoring process, I review the list of dividend increases every single week. I usually focus on companies that have raised dividends for at least a decade, in order to narrow down the list of companies to review.
In order to be successful at dividend growth investing, you need to identify companies that can grow earnings, dividends and intrinsic values over time, which you can also purchase at an attractive valuation.
I write these reviews in order to educate dividend investors about the quick way I use to look at companies before deciding whether to pursue further research or to discard them for the time being.
The companies that raised dividends last week, include:
Realty Income Corp (NYSE:O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States.
The firm makes investments in commercial real estate. The REIT raised its monthly dividend to 21.15 cents per share. Realty Income is a dividend achiever, which has rewarded shareholders with rising dividends for 23 years in a row.
Realty Income has a 10 year annual dividend growth of 4.70% per year. FFO per share has increased at a rate of 5.20% per year over the past decade. I would expect annual dividend growth in the 4% – 5% range over the next decade, unless a big accretive acquisition such as the one in 2013 is made.
Unfortunately this blue chip REIT is priced aggressively at 18.50 times forward FFO (19.70 times FY 2016 FFO) and yields 4.50%. I would consider O stock below $51 per share. I came to this number, as I would find Realty Income a good entry value around 16 times FFO or at a minimum yield of 5%.
W.P. Carey Inc. REIT (NYSE:WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The REIT raised its quarterly dividend to $1 per share. W. P. Carey is a dividend achiever, which has rewarded shareholders with rising dividends for 20 years in a row.
The REIT has a 10 year annual dividend growth of 8.10% per year. The strong distribution growth occurred as a result of the company’s conversion to REIT in 2012. FFO per share increased from $3.34 per share in 2007 to $4.86 per share in 2016. I would be surprised if annual dividend growth exceeds 3% – 4% per year over the next decade for W.P. Carey.
Currently this dividend achiever yields 5.90% WPC stock is attractively priced at 14 times FFO.
Target Corporation (NYSE:TGT) operates as a general merchandise retailer. The company raised its quarterly dividend by 3.30% to 62 cents per share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, the company has managed to boost dividends at a rate of 18.10% per year. Earnings per share rose from $3.33 per share in 2008 to an estimated $4.23 per share by 2017. The stock is attractively valued at 12.40 times forward earnings and yields 4.70%.
Unfortunately, earnings per share have plateaued over the past four – five years. Target has been unsuccessful in growing abroad, and has not managed to open many new stores in the US as of recently. It has faced intense competition from offline stores and online competitors. The company is working hard to grow its online sales, which could provide some growth. On the other hand, that growth could come at the expense of profitability.
The valuation is very compelling, and could result in decent returns for patient shareholders. Without further growth in earnings per share however, dividend growth will end in a few years. This is one of the reasons why I am not adding as much as I was three years ago.
Check my analysis of Target for more information about the company.
United Technologies Corporation (NYSE:UTX) provides technology products and services to building systems and aerospace industries worldwide. The company raised its quarterly dividend by an anemic 1.30% to 78 cents per share. This marked the 24th consecutive annual dividend increase for this dividend achiever.
Over the past decade, UTX has managed to boost dividends at a rate of 10.80% per year. Earnings per share rose from $4.27 per share in 2007 to an estimated $6.58 per share by 2017. The stock is fairly valued at 18.30 times forward earnings and yields 2.30%. Earnings growth has been non-existent since 2012/2013 unfortunately. I believe that the company made a mistake selling its Sikorsky business to Lockheed Martin Corporation (NYSE:LMT) a few years ago.
That being said, UTX is a good hold for long-term investors.