A dividend increase is one the surest signs of financial strength and management’s confident in the underlying business. Not surprisingly, company’s that consistently raise their dividends year after year have historically been some of the best performing stocks in the market. That is one reason why the list of dividend aristocrats is so popular.
Monitoring stocks that are raising their dividend payouts can be a great way to discover new dividend growth stocks to buy and hold for the long haul. The seven high quality dividend stocks all announced dividend increases over the past week and scored very well for Dividend Safety and Dividend Growth using our proprietary dividend rating system.
Analog Devices (ADI)
Analog Devices is a manufacturer of semiconductor chips used in many different types of electronic equipment. The company’s products convert real-world temperatures, sounds, speeds, pressures, lights, and motions into electrical signals to help electronic devices make sense of them. By focusing on the most difficult and rugged applications for its technology and selling primarily into long-cycle markets, the company has carved out dominant market share positions in high margin niches.
Analog Devices raised its dividend by 5% and has a solid Dividend Safety Score of 65 and a Dividend Growth Score of 81. Management has increased the company’s dividend by 17% per year over the last decade, although growth has slowed to an 11% annual rate the last three years. The semiconductor market is very mature, and Analog Devices has a payout ratio of about 70%, which is relatively high. We expect the company’s 10+ year dividend growth streak to continue albeit at a mid-single digit annual growth rate.
ADI’s stock trades at 18.3x forward earnings estimates and has a dividend yield of 3.2%, which is somewhat higher compared to its five-year average dividend yield of 2.7%.
Allstate is the second biggest personal property and casualty insurer in the country. It is also one of the largest life insurance companies. The business makes money by collecting premium policies from insurance policies and investing proceeds into stocks and bonds to generate income before claims need to be paid.
Allstate was forced to cut its dividend in half during the financial crisis, but the company has since increased its dividend by 8.4% per year over the last five years. Allstate raised its dividend by 10% this past week, marking its. We think the business can continue growing its dividend by a high-single digit pace thanks to its 24% earnings payout ratio and prospects for continued low-single digit revenue growth. As such, the company has a Dividend Safety Score of 72 and a Dividend Growth Score of 81.
ALL’s stock trades at 11.7x forward earnings estimates and has a dividend yield of 2.1%, which is roughly in line with its five-year average dividend yield.
Genuine Parts (GPC)
Genuine Parts is one of the biggest distributors of automotive replacement parts (53% of sales), industrial replacement parts (31%), office products (11%), and electronic materials (5%). The company has number one or two market share positions in each of its segments thanks to its large distribution network, industry-leading breadth of products, and strong reputation for quality.
Genuine Parts is one of less than 20 companies that has increased its dividend for at least 50 consecutive years, making it part of the exclusive dividend kings list. The company has reliably increased its dividend by 7-8% per year over the last decade, including its 7% increase earlier this month. With a payout ratio near 50% and plenty of opportunity to continue consolidated its large and highly fragmented markets, we believe the company will continue its high-single digit dividend increases. Genuine Parts scores very well under our ranking system with a Dividend Safety Score of 97 and a Dividend Growth Score of 75.
GPC’s stock trades at 19.4x forward earnings estimates and has a dividend yield of 2.9%, which is slightly higher than its five-year average dividend yield of 2.7%.
Interpublic Group (IPG)
Interpublic Group is one of the largest advertising and marketing companies in the world. Its advertising agencies help businesses in a wide variety of industries develop marketing programs to improve their sales. By developing long-term relationships with clients, Interpublic Group develops a deep understanding of a customer’s business that helps create switching costs.
The company raised its dividend by 25% last week and has grown its dividend by 26% per year over the last three years. With a 40% payout ratio and plenty of opportunity to continue taking share as spending on digital marketing grows, dividend growth will likely continue at a double-digit pace. Interpublic Group scores above average for Dividend Safety (62) and Dividend Growth (87) as well.
IPG’s stock trades at 16x forward earnings estimates and has a dividend yield of 2.8%, which is meaningfully higher than its five-year average dividend yield of 2.0%.
Coca-Cola needs little introduction. It is one of the most iconic consumer beverage companies in the world with brands including Coca-Cola, Diet Coke, Fanta, Sprite, Minute Maid, Powerade, and Dasani. The company has 20 brands with at least $1 billion in sales, and sparkling beverages accounted for roughly 70% of its global case volumes last year.
Coca-Cola has reliably increased its dividend by 8-9% per year over the last decade and raised its dividend by 6% last week. The company’s payout ratio is approaching 70%, which means future dividend growth will likely keep pace with earnings growth. We expect the company’s growth to continue at a mid-single digit rate. The business also scores extremely well for Dividend Safety (96) and above average for Dividend Growth (64).
KO’s stock trades at 22.5x forward earnings estimates and has a dividend yield of 3.2%, which is somewhat higher than its five-year average dividend yield of 2.8%.
Wal-Mart is the biggest brick-and-mortar retailer in the world and serves roughly 260 million customers each week. As the biggest player, it has substantial bargaining power with suppliers that helps it offer the lowest prices to customers. Grocery items account for just over half of Wal-Mart’s sales, which make it a fairly safe dividend stock.
Wal-Mart’s dividend scores very well for safety (92) and growth (69), although its dividend growth rate has decelerated from 12.6% per year over the last 10 years to 7.2% per year during the last three years. The company’s dividend increase this week was a measly 2%, reflecting the challenges the company is having to grow its profits in light of rising labor costs and increased competition from online retailers such as Amazon. We expect low-single digit dividend growth to continue until business trends show signs of improvement.
WMT’s stock trades at 15.6x forward earnings estimates and has a dividend yield of 3.1%, which is significantly higher than its five-year average dividend yield of 2.3%.
T. Rowe Price (TROW)
T. Rowe Price is one of the largest asset management firms in the world. The company manages over $700 billion for institutions and individuals, offering a wide range of mutual funds. Roughly 80% of the company’s assets are invested in equities with the remainder in bonds and money market accounts. Almost 70% of the company’s assets are related to retirement as well, which bodes well for future growth as more baby boomers retire.
The company increased its dividend by 4% last week and has grown its dividend by around 10% per year over the last five years, excluding the special dividends it paid in 2015 and 2012. The company scores above average for Dividend Safety (78) and Dividend Growth (69) thanks to its 40% payout ratio, prospects for moderate growth, and strong balance sheet (over $1.1 billion in cash and no debt).
TROW’s stock trades at 15.6x forward earnings estimates and has a dividend yield of 3.1%, which is meaningfully higher than its five-year average dividend yield of 2.2%.