As part of my monitoring process, I review the list of dividend increases every week. This helps me review companies I own. It also helps me identify companies I may be interested in.

When I review the list of dividend increases for the week, I usually focus my attention on the companies that raised dividends for at least a decade. The next step involves doing a quick review of fundamentals, which is documented in this type of article.

I look at trends in earnings per share, dividends per share in order to get an idea of how sustainable the current dividend is. It also helps me get an idea whether dividend growth is supported by growth in earnings, which can help me in deciding the likelihood of future dividend growth.

In general, I also look at valuation as well. I look at P/E ratios in conjunction with earnings and dividend growth. Companies with more dependable earnings get more points than companies whose earnings are more cyclical and harder to depend on.

Now that we got this out of the way, it is time to present the list of companies that 1) Raised dividends last week and 2) have managed to increase dividends annually for at least a decade.

The companies include:

Microsoft Corporation (MSFT) develops, licenses, and supports software, services, devices, and solutions worldwide.

Microsoft raised its quarterly dividend by 10.70% to 62 cents/share. The board of directors also approved a new share repurchase program authorizing up to $60 billion in share repurchases.

This is the 17th year of consecutive annual dividend increase for this dividend achiever. Over the past decade, Microsoft has managed to increase dividends at an annualized rate of 14.30%.

Between 2012 and 2021, Microsoft managed to grow earnings from $2/share to $8.05/share.

Microsoft is expected to earn $8.79/share in 2022.

The stock is selling for 34.71 times forward earnings and yields 0.81%

Texas Instruments Incorporated (TXN) designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing.

Texas Instruments increased its quarterly dividend by 13% to $1.15/share.

This marked the 18th consecutive of dividend increases for this dividend achiever. Over the past decade, Texas Instruments has managed to increase dividends at an annualized rate of 22.50%.

Between 2011 and 2020, Texas Instruments managed to grow earnings from $1.88/share to $5.97/share.

Texas Instruments is expected to earn $8.01/share in 2021.

The stock sells for 24.58 times forward earnings and yields 2.34%.

Philip Morris International Inc. (PM) manufactures and sells cigarettes, other nicotine-containing products, smoke-free products, and related electronic devices and accessories.

Philip Morris International raised its quarterly dividend by 4.20% to $1.25/share. This marked the 13th year of consecutive annual dividend increases for this international dividend achiever. Over the past decade, Philip Morris International has managed to boost dividends at an annualized rate of 7.10%.

Between 2012 and 2021, Philip Morris International managed to grow earnings from $4.85/share to $5.16/share.

Philip Morris International is expected to earn $6.09/share in 2021.

The stock sells for 16.90 times forward earnings and yields 4.86%.

Realty Income, (O) The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable monthly income.

The REIT hiked its monthly dividend to 23.60 cents/share. This was the 112th dividend increase since going public in 1994. The recent dividend is only 0.85% higher than the dividend paid during the same time last year. Over the past decade however, Realty Income has managed to grow dividends at an annualized rate of 4.90%. Realty Income is a dividend aristocrat, which has managed to increase dividends annually since 1995.

Between 2012 and 2020, Realty Income managed to grow FFO/share from $1.98 to $3.31.

Realty Income is expected to generate $3.46/share in FFO.

The REIT is selling for 19.78 times forward FFO and yields 4.14%. Check my analysis of Realty Income for more information about the REIT.

Fifth Third Bancorp (FITB) is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent company of Fifth Third Bank, National Association, a federally chartered institution.

Fifth Third Bancorp raised its quarterly dividend by 11.10% to 30 cents/share. This is the eleventh year of annual dividend increases for this dividend achiever.

Between 2012 and 2021, Fifth Third Bancorp managed to grow earnings from $1.18/share to $1.83/share.

Fifth Third Bancorp is expected to earn $3.63/share in 2021.

The stock is selling for 11.12 times forward earnings and yields 2.97%.

Relevant Articles:

- Three Dividend Growth Stocks In the News

- Six Dividend Growth Stocks Rewarding Shareholders With Raises

- Five Companies Rewarding Shareholders With a Raise

- Kroger and John Wiley Reward Shareholders With Dividend Increases

Today, I wanted to share the story of Earl Crawley, a parking lot attendant who accumulated a portfolio of dividend stocks worth $500,000, despite the fact that he never made more than $20,000/year.

This story is very inspirational, and teaches us a lot of lessons that are applicable to all of us, despite the cards we are dealt in life. It reminds me a lot of the story of Ronald Read, the Vermont Gas Station Attendant, who built a dividend portfolio worth $8 million.

Mr. Earl's Story

Earl Crawley was a 69 year old Baltimore parking lot attendant, when I first heard about him in 2008.

He had worked as a parking lot attendant for a bank for the previous 44 years. He had never made more than $20,000/year. Despite all of that, he had a dividend portfolio worth $500,000 and a fully paid off home.

Earl had a difficult childhood. When he was 4, he and his three sisters and brother were placed in St. Elizabeth's Orphanage on Argonne Drive after his mother contracted tuberculosis. It took nearly three years for his mother to get well and reunite the family. They rented an apartment on Saratoga Street near Lexington Market.

Earl had started working at the age of 13, but his mother took most of his income. He had dyslexia, which is why there were not many opportunities for him beyond some manual labor jobs such as mowing lawns, cleaning houses, being a parking lot attendant. He realized he had to save as much money as he can to overcome life's challenges.

After he got married, and had three children, he supported his family on $80/week in the 1960s. Money was tight, but he lived within his means by keeping costs low and working several jobs to make more income. Despite all obstacles, his frugal attitude helped him to save and invest. He had learned this resourcefulness from his mother, who was able to make ends meet with a limited income from low wage jobs.

How did this parking lot attendant manage to learn about bonds, dividend reinvestment plans and investing in the stock market?

One day, a well-meaning co-worker took Crawley aside and put a bug in his ear: You have a limited education. You better get some money because you won't go far here. That co-worker, became a friend and mentor, spurring the youthful handyman to learn more about the stock market.

His parking lot was close to a lot of financial institutions. Earl kept asking questions, and kept learning, picking the brain of anyone who engaged. Earl listened to bankers, lawyers, brokers, believed in the power of compounding & stocks for the long run.

Mr Earl's Investing Journey

His ultimate goal was to let the money work for him so he didn't have to.

Earl started with savings stamps, savings bonds and later graduated to investing regularly in a mutual fund. He started investing consistently $25/month in a mutual fund for 15 years.

By the late 1970s, his net worth reached $25,000.

By 1981 he started investing directly in blue chip, dividend paying stocks like IBM, Coca-Cola, Caterpillar. He bought a share or two, but kept buying consistently over time. He kept reinvesting his dividends, which increased his shares and dividend income.

By 2007 he had a portfolio worth $500,000, a fully paid off house and no debt

I would imagine that his portfolio generated between $15,000 and $20,000 in annual dividend income

At his income level that was probably tax-free or tax-deferred. That’s because his assets were split between a company 401 (k), an Individual Retirement Account and a taxable account. If you are under a certain income threshold, most of your assets would be non-taxable.

Mr Earl's Portfolio Holdings

Based on information I found about him, his portfolio seemed diversified in blue chip companies that paid a dividend. Examples include:

Coca-Cola (KO)

Caterpillar (CAT)

Bank of America (BAC)

IBM (IBM)

Colgate-Palmolive (CL)

Lockheed Martin (LMT)

Verizon (VZ)

AT&T (T)

Exxon-Mobil (XOM)

He couldn't afford to lose money in the stock market. This is why he focused on stable blue chip companies, which paid a dividend.

He has stated that when he first started out, he had to be conservative and take his time because he couldn't afford to lose money. He looks for companies with stability that pay dividends. While he does use his broker, many times he'll go where my spirit leads him.

He also held mutual funds in his IRA and 401 (k). He did have a good amount of employer stock in his 401 (k) too, which was accumulated through regular payroll deductions.

Earl is also paying it forward, by donating shares to others, teaching them about dividend reinvestment and the power of compounding. He shares his lessons with other members of his church, and starting an investment club.

This knowledge would hopefully compound, make his community better educated and hopefully wealthier. This knowledge would pay dividends for generations to come, hopefully breaking the cycle of poverty for many of his friends.

Seven Wealth Building Lessons from Mr. Earl

After reviewing some interviews with Mr Earl, and reading some articles about him, I have come with a list of several lessons that helped him accumulate his nest egg.

1. Live within your means

2. Try to always save some money

3. Invest regularly on a consistent schedule

4. Invest in blue-chip dividend paying stocks

5. Reinvest those dividends

6. Let your money work hard for you

7. Keep learning

I find stories like that very inspirational. It shows me that anyone can acquire wealth if they live within their means, save and invest prudently, and take advantage of the power of compounding over long periods of time.

One of the largest misconceptions people have is that they need to earn a high income, in order to save. The important thing is to be able to live within your means, and manage your income and your expenses at the same time. The different between income and expenses is the savings rate, which should be then invested in assets such as equities.  While earning a high income can help, too often we see highly compensated employees succumb to lifestyle inflation and spend their raises, and then some, on an expensive lifestyle. While earning a low income may seem like an obstacle to building wealth, it may teach folks to be resourceful and live a simpler life withot many wants. This can lead to a cheap lifestyle, that can help accumulate wealth. This is a counter-intuitive idea to many folks today. Yet, people like Mr Earl and Ronald Read, the millionaire gas station attendant, are living proof that you do not need a high income to accumulate a sizeable nest egg.

I believe that if there is a will, there is a way.

A dividend growth stock is a company that has managed to grow dividends for a certain number of years. Only a certain type of quality companies can afford to grow the business and shower its shareholders with a rising amount of cash for years if not decades.

I view long streak of consecutive annual dividend increases as a quality filter. It allows me to create a list of companies for further research. While I do examine each company I invest in, I do believe that Dividend Growth Investing has a strong merit.

There are several studies on the performance of Dividend Growth Stocks.

The first is the research from Ned David Research, which reviewed the performance of companies in the S&P 500 by dividend policy.

It shows that companies that grow dividends and initiated dividends have tended to deliver the best performance for companies in the S&P 500. Companies that paid dividends ended up delivering a better return than the equal weighted S&P 500 and non dividend payers. 

The worst performing groups over the past fifty years seem to be non-dividend paying stocks and dividend cutters and eliminators. 

The fascinating fact is that over the past decade, a lot of non dividend paying companies like Google, Facebook and Amazon ended up delivering great returns. Historically however, non-dividend paying companies were the ones that could not afford to pay a dividend, which is why their returns were not great. Perhaps the past decade is an aberration; or perhaps it is a shift in corporate policy for US corporations towards less dividends. 

The second is the research from S&P, which reviewed the performance of the Dividend Aristocrats. These are companies in the S&P 500, which have managed to grow dividends for 25 years in a row.

Since 1989, the list of dividend aristocrats has done better than S&P 500. However, there were ups and downs in it. The 1990s were not a good time to be a dividend growth investor, as rising stock prices and growth stocks did very well. This is why few investors cared about dividends in the 1990s. In the 2000s however, dividend aristocrat companies did very well. This continued in the 2010s.

Despite the rise in equities, and growth companies since 2010, dividend aristocrats have managed to do well. This is a testament to the quality aspect of dividend aristocrats. After all, only a certain type of exceptionally managed company with a strong moat can deliver the rising earnings per share to be able to grow dividends for at least a quarter of a century in the first place.

I personally always enjoyed the list of Dividend Champions, Contenders and Challengers, which was created by David Fish. It listed companies with 25, 10 and 5 year streaks of consecutive annual dividend increases. 

Tractor Supply Company (TSCO) operates rural lifestyle retail stores in the United States. The company sells its products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. Tractor Supply Company was founded in 1938 and is headquartered in Brentwood, Tennessee.

 The company provides livestock and pet products (47% of 2020 sales); hardware, tools, truck, and towing (21%); seasonal products (such as snow blowers and mowers), gifts, and toys (21%); clothing and footwear (7%); and agriculture (4%).

As of December 2020, it operated 1,923 Tractor Supply retail stores in 49 states. The company operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and Petsense names.

The company had 182 Petsense stores at the end of 2020. It also operates Websites under the TractorSupply.com and Petsense.com names. 

Tractor Supply has managed to increase dividends every year, since initiating a dividend in 2010. The company usually increases dividends in May.  Tractor Supply has managed to increase dividends over the past 5 years at an annualized rate of 14.60%. Future dividend growth will be a little higher than earnings growth over the next decade, assuming a slight expansion in the payout ratio.

The last dividend increase was in January 2021, when Tractor Supply increased its quarterly dividend by 30% to 52 cents/share. This was the second dividend increase in a year. The first one was in August 2020, when the company increased dividends by 14.28% to 40 cents/share.

Tractor Supply managed to boost earnings from $0.81/share to 2009 to $6.38/share in 2020. The company provided fiscal 2021 diluted EPS outlook in the $7.70 to $8/range.

Tractor Supply expects to grow earnings through several levers, including same stores sales growth, opening new stores, strategic acquisitions and share buybacks.

The company expects to grow the number of stores under Tractor Supply and Petsense brands. During fiscal 2020, the Company opened 80 new Tractor Supply stores and nine new Petsense stores and closed one Tractor Supply store and seven Petsense stores. There are 1923 Tractor Supply stores and 182 Petsense stores. Analysts expect that the number of Tractor Supply stores could reach 2,500 locations over the upcoming decade, and Petsense to a little over 300. According to the company research, there is an opportunity to build out the site levels to 2,500 stores.

The company plans to open about 80 new Tractor Supply stores and 10 new Petsense locations in FY2021.

Tractor Supply acquired a portfolio of 136 Petsense stores in 2016 for $116 million. It expected to grow the number of stores at a double-digit rate of increases every year. There is an opportunity for expansion, given the fact that the pet industry is a $60 billion market. Albeit it is competitive, which means that having a unique niche can pay dividends if the business plan is executed in a smart way.

The company has been repurchasing stock over the past decade (more on that below), which increases earnings per share, and increases your ownership of the enterprise.

The stock had gone nowhere for several years between 2014 and 2019, despite the fact that earnings per share kept growing at a fast pace. It looks like Tractor Supply was overvalued five years ago, and in the past two years the fundamentals are finally catching up to the lofty share price expectations from a few years ago. 

The company’s sales are somewhat insulated from the threat of e-commerce, due to its unique assortment of niche goods that are needed right away and/or are expensive to ship. It has a unique geographic positioning in rural areas. However, it is trying to focus on an omni-channel experience, where customers can buy a product online, and pick it up in-store.

Improving productivity, and removing cost from the structure could result in margin increase, and improve profitability as well.

Tractor Supply definitely benefited from Covid-19, as its rural customers flocked to its stores.

The company has managed to reduce the number of shares outstanding over the past decade, through consistent share buybacks.  The company remains committed to returning cash to our shareholders through our share repurchases and dividends while maintaining a disciplined approach to capital allocation. The number of shares outstanding has declined from a high of 149 million in 2010 to a low below 117 million shares by late 2020.

The payout ratio has been on the rise since initiating the dividend in 2010. Currently, Tractor Supply distributes approximately 30% of earnings in the form of dividends. This is a low amount, and leaves enough room for future dividend increases, while balancing the needs of the business. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business.

Currently, the stock is selling for 24.85 times forward earnings. It offers a low current yield of 1.05%. While the yield is low, I believe that Tractor Supply offers the opportunity for above average dividend growth over time. 

Relevant Articles:

I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing dividend holdings. It also helps me identify companies for further research.

I usually focus my attention on the companies that grow dividends for at least a decade. That because my goal is to find sustainable dividend growers that have managed to grow dividends for at least once full economic cycle.

Over the past week, there were three dividend payers that raised dividends and also have a ten year track record of annual dividend increases. The companies include:

Verizon Communications Inc. (VZ) offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.

The company raised its quarterly dividend by 2% to 64 cents/share. This is the 15th consecutive year Verizon’s Board has approved a quarterly dividend increase. Over the past decade, the company has managed to increase dividends at an annualized rate of 2.60%.

The stock sells for 10.47 times forward earnings and yields 4.63%.

ChoiceOne Financial Services, Inc. (COFS) operates as the bank holding company for ChoiceOne Bank that provides community banking services to corporations, partnerships, and individuals in Michigan.

The company raised its quarterly dividend by 13.60% to 25 cents/share.  This marked the tenth year of consecutive annual dividend increases for this newly minted dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 6.50%.

The stock sells for 10 times earnings and yields 4.06%.

Atrion Corporation (ATRI) develops, manufactures, and sells products for fluid delivery, cardiovascular, and ophthalmology applications in the United States, Germany, and internationally.

The company raised its quarterly dividend by 11% to $1.95/share. This marked the 18th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to increase dividends at an annualized rate of 15.50%.

The stock is selling for 41.30 times forward earnings and yields 1.11%.

The Dividend Aristocrats index includes companies that are members of S&P 500, which have managed to raise dividends annually to their shareholders for at least 25 years in a row. This is an elite list of companies, most of which are worthy of further research by enterprising dividend growth investors.

The list was launched in 2005, and back-tested to include data going as far back as 1989. I generally like the companies on it, though I prefer the more detailed dividend champions list.

As part of my investment strategy, I focus on quality dividend growth companies. I view the ability to grow dividends annually for over a quarter of a century as a quality filter that is being met. Therefore, many Dividend Aristocrats fit the bill.

Of course, that doesn’t mean that all companies will succeed or are good investments today. It just means that these companies are good candidates for further research.

I recently browsed through my archives, and stumbled upon the dividend aristocrats list for 2011. The article was written in December 2010, when there were only 41 dividend aristocrats.

I went ahead and reviewed these companies, in order to see how they ended up doing in the subsequent 10 years.

You can view the list of companies from 2011 in this article, including fundamentals information such as P/E, dividend yields.

You can view the subsequent performance in this table below:

I reviewed the performance of each company. It looks like there were several companies that delivered outstanding total returns performance.

The fascinating part is that only two of these companies ended up cutting dividends. Those were Pitney Bowes and Century Link (now Lumen).

There were four companies that were acquired. This just goes to confirm my belief that many dividend aristocrats are good acquisition targets.

I also calculated the yields on cost for an investor who bought in late 2010, when I originally posted the article. This was done only for the companies that were not acquired. It does include the companies that cut dividends down the road.

If you asked me what the best values were at the time, I would not have expected that these would be the best ideas.

I did specify a few of the values in my 2011 article, but did not expect Standard & Poor's Global (SPGI), Sherwin-Williams (SHW), and Cintas (CTAS) to be the best performers. 

A few of the companies that didn’t do so well however, like Exxon (XOM), Coca-Cola (KO), were the types that I frequently talked about on this site.

Others I spoke frequently about were (to name a few) Johnson & Johnson (JNJ), Target (TGT), McDonald's (MCD), Wal-Mart (WMT), 3M (MMM), PepsiCo (PEP), and they did provide a decent return to shareholders.

All of this data goes to show me that the future is cloudy at best. Very few are able to forecast accurately, and position their investments in a way as to allow for maximum gain.

In other words, we will make mistakes when we invest. There is no way around that. The goal is to minimize impact of mistakes when we invest.

This is why I believe in diversification. If someone were to invest in equities, it makes sense to diversify widely. That gives you the best possible chance of owning a few of the investments that may turn out to be the best. That being said, you may still want to focus on quality, and not just randomly pick companies.

I do not believe in concentrating investments. That’s because you may be wrong, and if you have too much in a certain company, you may lose a little too much.

I believe in allocating investments equally. This gives each investment an equal chance of success.

However, once the money is allocated to the portfolio, I believe in letting each investment work its magic without touching it. I do not believe in micromanaging management, nor do I believe too much activity adds any value. On the contrary, I believe that too much monitoring may cause the investor to do something silly like selling the big winners early, and adding to the cheaper value traps that seldom deliver. You want to avoid cutting the flowers to water the weeds.

So in other words, I believe in letting the winners ride and rise for as long as possible. While I am a fan of diversification and equal weighting from the start, I am all for letting the winners become a concentrated positions merely because they are successful. I am not a fan of re-balancing. I am also beginning to warm up to the idea of automatically reinvesting dividends back in the same company that distributed them (DRIP).

Your opinions may be wrong. Your strategy may have blind spots. You need to be aware of that, and try to learn and create an environment that takes care of those blind spots.

I just find these types of articles to be really helpful for me. Hope they are as helpful to you too.

Relevant Articles:

- Dividend Portfolios – concentrate or diversify?

- Concentrated versus Diversified Dividend Investing

- How to properly weight dividend portfolio holdings

Dividend growth investing is a simple but effective strategy. It is widely misunderstood too.

As a Dividend Growth Investor, I look for companies with a long history of annual dividend increases.

A long streak of consecutive annual dividend increases is typically an indication of a business with strong competitive advantages, good growth prospects, high returns on invested capital, and strong and recurring cash flows. A long streak of annual dividend increases is typical for companies with wide moats, which have tended to grow earnings per share for decades. As a long-term dividend investor, my goal is to identify such a business early in the game, buy it at an attractive price, and ride the economic trend for as long as possible. In other words, I am after companies that can grow earnings and dividends over time. I buy and hold forever, or in my case, for as long as they do not cut dividends.

Before doing so of course, I always review the company, its fundamentals and check the qualitative aspect of the business as well. Once I initiate a position, I also monitor the company for any major developments. But as part of my risk management process, I keep portfolio weights in check, and I very rarely would sell an existing position. I may not add to it if it stops meeting my entry criteria, which is guaranteeing a low allocation, as I build positions slowly and over time.

One of my favorite monitoring exercises is to check the list of dividend increases every week. That way, I get to see if my existing investments continue raising dividends, and if my thesis is still working. I also get to identify companies for future research through this exercise. In addition, I get to read the press releases and gauge managements sentiment towards the near-term prospects of the business.

My weekly review focuses on companies that have increased distributions for at least ten years in a row. During the past week, the three companies that raised dividends include:

EastGroup Properties, Inc (EGP) is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States 

Eastgroup properties hiked its quarterly dividend by 13.90% to 90 cents/share. This marked the tenth year of consecutive annual dividend increases for this newly minted dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 3.90%.

The REIT is expecting to generate $5.87/share in FFO in 2021.

The REIT is selling for 29.14 times forward FFO and yields 2.10%.

Altria Group, Inc. (MO) manufactures and sells cigarettes, oral tobacco products, and wine in the United States.

Altria increased its quarterly dividend by 4.70% to 90 cents/share.

This marked the 52nd year of consecutive annual dividend increases for this dividend king.

Over the past decade, Altria has managed to increase dividends at an annualized rate of 9.10%. The pace of annual dividend growth has slowed down in the past two – three years however.

The company is expecting to earn $4.62/share in 2021.

The stock is selling for 10.55 times forward earnings and yields 7.38%. Check my analysis of Altria for more information about the company.

Extra Space Storage Inc. (EXR) is a self-administered and self-managed REIT. The company owned and/or operated 1,906 self-storage stores in 40 states, Washington, D.C. and Puerto Rico.

Extra Space Storage hiked its quarterly dividend by 25% to $1.25/share. This REIT has increased dividends for 11 years in a row. It has a ten year annualized dividend growth of 24.60%, which is very high. The five year annualized growth is 10% and the three year annualized growth is 4.90%.

The REIT is expected to earn $6.57/share in 2021.

The stock sells for 27.51 times forward FFO and yields 2.75%.

Altria Group, Inc. (MO), through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands. The company also produces and sells varietal and blended table wines, and sparkling wines.

The company delivered another smoking hot dividend increase to shareholders yesterday, by increasing its quarterly dividend by 4.70% to 90 cents/share. This marked the 52nd year of consecutive annual dividend increases for this dividend king. The new annualized dividend rate is $3.60 per share, representing a yield of 7.38% based on Altria’s closing stock price of $48.75 on August 26, 2021. The raise is also better than the 2.40% raise received last year.

I liked the following passage from the press release:

Today’s dividend increase reflects Altria’s intention to return a large amount of cash to shareholders in the form of dividends and is consistent with Altria’s long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted earnings per share. This increase marks the 56th dividend increase in the past 52 years.

To me it shows a dedication to paying a dividend, but keeping the payout ratio around 80%. Altria may still do some buybacks, as it focuses on its core business.

Over the past decade, Altria has managed to more than double its dividend. The company paid out $1.22/share in 2008, and it paid out $3.40/share in 2020. 

The first time I mentioned Altria in 2009, it sold for about $15/share. Someone who invested back then would be earning and yield on cost of 24%. In other words, they would be getting their original cost back in dividends alone every 4 years, while also fully participating in any stock upside.

Between 2008 and 2020, Altria managed to boost its earnings per share from $1.45 to $3.80. The earnings for 2019 and 2020 have been adjusted to exclude the one-time charges related to the investment in JUUL in 2018. The company expects to generate between $4.56/share and $4.62/share in adjusted earnings per share in 2021.

On a side note, the earnings per share for 2016 and 2017 and 2019 have been adjusted to exclude one-time accounting items.

There are a lot of reasons to like Altria. The products are branded and addictive and the market for tobacco products so far is in the hands of a few major players with Altria holding a dominant position. There is some threat of future legislation banning the sale of tobacco products or making it uneconomical. However, local governments take in a ton of money by heavily taxing tobacco products. It is hard to find another scapegoat that can be taxed so heavily.

The other factor to consider is that while the number of smokers is expected to be decreasing over time, so far the increase in prices has more than offset the drop in consumers. At some point, this could reverse, but this has been the fear for several decades now. So far, price increases have more than offset volume declines, which results in growing net income year over time. Future growth in earnings will also be driven by productivity improvements, as well as strategic acquisitions and new product developments. Share buybacks are another tool that could increase earnings per share over time. As an owner of a 10% stake in Anheuser - Busch Inbev (BUD), Altria's fortunes are also tied to the performance of this entity.

New regulations could potentially be bad for e-cigarettes, which compete with Altria’s products. However, there may be regulation against certain types of its products, which is one reason why tobacco stocks seem to have sold off as of recently. I am not sure if I would embrace marijuana’s legalization, or Altria’s deals to acquire stakes in cannabis companies. The cannabis market is still young, and may disrupt the market for tobacco products. The winners from legalization may not be known for years down the road however.

The company is embracing the future for non-heated tobacco products, through expanding IQOS and Marlboro HeatSticks into retail stores statewide across Georgia, Virginia, North Carolina and South Carolina and to the Northern Virginia metro market. 

The stock is a very good value today, albeit a risky one, as indicated by the high current yield. That being said, I am taking an increasingly concentrated bet, because I have the highest portion of my dividend income coming from Altria. If I am wrong, and the tobacco business is being disrupted at a faster pace than anticipated, my portfolio could take a hit in dividend income. If the stock goes further down, I would be unable to add further to the position from a risk management perspective. (I have been saying that for two years however)

Growth in earnings per share is impressive, given the fact that the company has paid out 80% of earnings to shareholders annually. In addition, the company also managed to repurchase 10% of shares outstanding during that same time period.

The company’s dividend payout ratio has declined from 85% in 2008 to a little over 89% in 2020. Management has stated its target for Altria’s dividend payout ratio of approximately 80% of its adjusted diluted earnings per share. That hasn’t stopped it from more than doubling earnings per share over the past decade. The payout ratio is generally looking high, because dividends are set based on the growth of next years earnings.

Currently, the stock is attractively valued at 10.69 times forward earnings and yields 7.38%. I believe that the dividend is defensible and can grow over time above the rate of inflation.

Relevant Articles:

- The Best Performing Sector of the 20th Century

- Warren Buffett and Charlie Munger on Investing in Tobacco Stocks

One of my favorite publications is the Credit Suisse Global Investment Returns Yearbook. It lists a ton of historical data on the returns for several different markets and asset classes since the beginning of the 20th century. You can review the 2020 Yearbook from this location.

The research discussed ESG investing, and shared some research on the profitability of investing in Sin Stocks. Notable sin stocks include the types of tobacco, alcohol, gambling and in some instances weapons. Over the 81 years 1926-2006, US sin stocks outperformed by 3%−4% per year, while international sin stocks outperformed by 2½% per year over a shorter interval (1985–2006).

Credit Suisse crunched some data on US stocks and sectors, and found out that $1 invested in the US market in 1900 would have turned to $58,191 by 2020. This provides an annualized return of 9.60%.

Tobacco was the best performing sector, as it turned a $1 invested in 1900 to over $8 million by 2020. This provides an annualized return of 14.20%. Alcohol was the second best performing industry, but its data started in 1927, so it didn’t span the whole 20th century.

Credit Suisse also looked at the UK stock market, where one Pound invested in 1900 grew to 43,687 by 2020, for an annualized return of 9.30%. The best performing sector was alcohol, turning one pound to 491648, for an annualized return of 11.50%. Their data on tobacco didn’t start until 1920. However, tobacco turned out to be the second best performing UK sector.

The traditional argument as to why sin stocks tend to do well is because a certain portion of the investor population would not invest in them. As a result, they trade at a discount to intrinsic value, which results in larger profits for the investor. For example, if all else is equal in terms of earnings growth, a tobacco company selling at 10 times earnings and yielding 5% would generate better total returns over time than a soap maker that sells for 20 times earnings and yields 2.50%.

Some claim that this discount is warranted, given the increased regulatory and litigation risk. The fact that government could outlaw Tobacco or Alcohol is a possibility, albeit a very remote one. At least in the US, state and local governments are addicted to revenues from sales of tobacco products. It would be very difficult to find another venue that would replace lost revenues should the sales of tobacco and alcohol be banned.

The irony is that increased regulation on tobacco in particular have essentially created a lasting moat, or a barrier to entry, that makes it harder for new entrants into the market. 

Source: Ash Park 

Tobacco and alcohol are addictive products, with tobacco more so than alcohol. Demand is inelastic, and people tend to smoke and drink no matter what the economy does. Historically, tobacco companies have managed to increase prices at a pace that is faster than declines in number of smokers. As a result, revenues and profits have increased, despite the decrease in number of smokers. There is brand loyalty, as smokers tend to stick to their type of cigarette. 

Even Buffett has realized the strong brand loyalty and addictive nature of the product.

During the RJR Nabisco hostile takeover fight in 1987, Warren Buffett was quoted as telling the following to the CEO of Salomon Brothers:

"I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty"

However, his remarks at the 1994 Berkshire Hathaway annual meeting point out his reasoning as to why he may not invest in the future: (Source)

"It is fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn't mean it has a bright future"

He further explains his reasoning in the 1997 Annual Meeting. Notably, it is probably due to his personal ethical/moral beliefs and his belief on the company's prospects.

The 2020 edition included some additional research on ESG Investing, which seems to be in Vogue today. In my opinion, ESG investing is a way for asset managers to differentiate themselves and help them in charging higher fees to clients. I believe that investing for profit is already difficult. Assigning arbitrary ethical and moral standards on investments makes the job of an investor pretty much impossible. That’s because instead of evaluating investments on their merits, ESG focuses on arbitrary ethical beliefs. In essence, you are engaging in virtue signaling, instead of focusing on making money. If you are allocating money to serve your beliefs first, and wondering about profits second, you are basically engaging in charity. Nothing wrong with that, but this is not investing. I prefer to make my money investing rationally, and only then use my profits to allocate for my charitable beliefs. I do not expect companies to donate directly in accordance with my personal beliefs. That’s because everyone’s ideas on ethics/morality can differ, as they exist on a spectrum.

I believe that ethical investing does not exist. However, I am not going to impose my imperfect views of course. I do understand if some folks are against tobacco or alcohol, and I respect their views.

We do have some threats coming up in the smokeless and vapor products, that could jeopardize the traditional cigarette model. For some companies like Phillip Morris International and iQos, that's an opportunity. British American Tobacco also has some alternative brands. Altria could also do well with JUUL. We don't know which product consumers would like, and stick to however.

These companies include:

Altria (MO), which manufactures and sells cigarettes, oral tobacco products, and wine in the United States. 

The company has increased dividends for 52 years in a row. 

This dividend king is selling for 10.43 times forward earnings and yields 7.10%. Check my analysis of Altria for more information about the company.

British American Tobacco (BTI) , which provides tobacco and nicotine products to consumers worldwide. It offers vapor products, tobacco heating products, and modern oral products; combustible products; and traditional oral products, such as Swedish-style snus and American moist snuff.

BAT has managed to grow dividends annually since 1997.

The stock sells for 8.24 times forward earnings and yields 7.92%. Check my analysis of BAT for more information about the company.

Tobacco companies have delivered outstanding performance in the past century. However, they have not done so well over the past 4 - 5 years, which is why some investors are unsure about the sector.

On one hand, it looks like an opportunity to invest at a bargain price in an industry with strong economics, which has delivered dividends, earnings and total returns to shareholders for decades.

On the other hand, the market participants may be showing correctly that there are some risks that folks are not thinking about. 

Given the high yields, it clearly shows that investors are viewing those companies as high risk. While the dividend payout ratios are high, they have historically been high as well. That being said, if management teams view clouds on the horizon, they will likely cut dividends. The odd part is that debt markets quote lower yields on bonds for tobacco companies like Altria, than the stock market. For example, Altria bonds due in 2039 sell at an yield of 4%. (Source)

Given the cheap rates on borrowing today, it may not be surprising if someone takes one of these tobacco companies private. That investment can pay off in a decade. 

What is your opinion on tobacco stocks today? Please feel free to share in the comments below

Relevant Articles:

- Warren Buffett and Charlie Munger on Investing in Tobacco Stocks

- Terry Smith on Investing in Tobacco Stocks

I review the list of dividend increases every week, as part of my review process. This is one notification that pushes me to review developments around companies I own. It also helps me observe companies for future research. 

I usually focus my attention on companies that have managed to increase dividends for at least a decade.

Monro, Inc. (MNRO) provides automotive undercar repair, and tire sales and services in the United States.

Monro raised its quarterly dividend by 18.20% to 26 cents/share. This marked the 16th year of consecutive annual dividend increases for this dividend achiever. 

During the past decade, the company managed to grow dividends at an annualized rate of 13.60%.

Between 2012 and 2021, the company’s earnings went from $1.69/share to $1.01/share.

The company is expected to earn $2.07/share in 2021. 

The stock is selling for 26.87 times forward earnings and yields 1.87%

Stock Yards Bancorp, Inc. (SYBT) operates as the holding company for SYB that provides various banking products and services in Louisville, Indianapolis, and Cincinnati. It operates in two segments, Commercial Banking and WM&T.

Stock Yard Bancorp raised its quarterly dividend by 3.70% to 28 cents/share. This marked the twelfth year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to grow dividends at an annualized rate of 8.90%.

The company managed to grow earnings from $1.14/share in 2011 to $2.59/share in 2020.

The company is expected to earn $3.63/share in 2021

The stock sells for 14.22 times forward earnings and yields 2.17%.

Cboe Global Markets, Inc. (CBOE) operates as an options exchange worldwide. It operates through five segments: Options, North American Equities, Futures, European Equities, and Global FX.

Cboe raised its quarterly dividend by 14.30% to 48 cents/share. This marked the 11th consecutive year that this dividend achiever has raised its dividend. Over the past decade, the company has managed to grow dividends at an annualized rate of 22.80%/year.

CBOE managed to grow earnings from $1.52/share in 2011 to $4.27/share in 2020.

The company is expected to earn $5.62/share in 2021.

The stock sells for 23.09 times forward earnings and yields 1.48%.

Dillard's, Inc. (DDS) operates retail department stores in the southeastern, southwestern, and midwestern areas of the United States.

Dillard’s raised its quarterly dividend by 33.30% to 20 cents/share. This marked the 11th year of consecutive annual dividend increases for this dividend achiever. Dillard’s has managed to grow dividends at an annualized rate of 14.10% over the past decade.

The company earned $8.52/share in 2012, but it’s earnings per share ended up declining gradually over the past decade, despite reducing the number of shares outstanding in half during the time period. Dillard’s lost $3.16/share in 2021, which is not surprising given the Covid-19 pandemic that affected a lot of brick and mortar retailers.

The company is expected to earn $7.64/share in 2021.

The stock is selling for 26.24 times forward earnings and yields 0.40%.

American Financial Group, Inc. (AFG) provides specialty property and casualty insurance products in the United States.

The company raised its annual dividend by 12% to $2.24/share. This marked the 16th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 12.40%.

Between 2011 and 2020, the company managed to grow earnings from $3.32/share to $8.20/share.

The company is expected to earn $9.22/share in 2021

The stock sells for 14.83 times forward earnings and yields 1.46%.

MGE Energy, Inc (MGEE) operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other.

The board of directors of MGE Energy, Inc. increased the regular quarterly dividend rate approximately 5% to $0.3875 per share

This dividend increase marks the company's 46th consecutive year of increasing its dividend.

Between 2011 and 2020, this dividend champion managed to grow earnings from $1.76/share to $2.60/share.

The company is expected to earn $2.94/share in 2021.

The stock is selling for 28.05 times forward earnings and yields 1.79%.

Dollar General Corporation (DG) is a discount retailer that provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States.

The company initiated a dividend in 2015 at a quarterly rate of 22 cents/share, and has managed to boost it to 42 cents/share in 2021. The rate of the last dividend increase was 16.67% in March 2021. I expect a higher than average dividend growth, because the company is in the initial phase of dividend growth, has a low dividend payout ratio and it also grows earnings at a decent rate.

Between 2011 and 2020, the company managed to increase earnings from $2.22/share to $10.62/share. The company is expected to earn $10.19/share in 2021.

Growth in earnings per share will be driven by increase in number of stores, increases in same-store sales, and share buybacks. Driving profitable sales growth and capturing growing opportunities should serve DG well, along with improving its advantage as a low-cost operator.

Dollar General offers compelling value and convenience to its shoppers, through competitive prices in a small store format. Most of the goods sold by Dollar Stores are food and daily essentials, which are less frequently purchased online and are for immediate consumption, limiting the appeal of waiting days or more for delivery. Dollar stores are able to open in areas other retailers wouldn't because of their small size. A large portion of new stores opened in the US this year are Dollar stores, with about 1/3^rdof them being Dollar General stores.

The company offers convenience to its shoppers, has the advantages of scale, and has the purchasing power to maintain low costs. It offers a lot of private labels in its stores, and a limited number of items, which is good for margins. Most of DG’s stores are in smaller towns, which makes it a very competitive option for shoppers and explains the high gross margins. The company can increase penetration in urban markets, which can bode well for sales. Only about a quarter of stores are in urban areas. This means that 75% of stores are in areas with population of less than 20,000 people. They are strategically placed in food deserts, where other grocery options are miles away. The typical consumer is a lower-income family, that doesn’t shop in large quantities.

Investing in high-growth opportunities, including new store expansion and other strategic initiatives, should remain at the top of the priority list when it comes to capital allocation. The company can also continue investing in its distribution center network, in order to support new store growth and increased productivity. Initiatives include focusing on non-consumables, DG Fresh, and Fast Track.

Dollar stores are also capturing more affluent shoppers hunting for discounts on essentials. Consumers may be looking to save even more money now that inflation is ticking up.

Dollar General has repurchased shares at a steady clip over the past decade. It looks like the company has managed to repurchase at least 3% of shares outstanding in each year since 2011. The only exception is in 2018, when it repurchased 2.56%.

The dividend payout ratio started at 22.30% in 2015 and is at 13.60% today. There is ample room for future dividend growth from earnings growth, as well as a gradual increase in the dividend payout ratio.

The stock is selling for 21.44 times forward earnings and yields 0.77%. While the company is at the top of its valuation range in terms of P/E, it will most probably grow earnings per share at a decent rate over the next decade.

Relevant Articles:

- How to select winning retail stocks

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I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me review existing holdings and identify companies for future research.

I focus my attention on the companies with a ten year track record, in order to identify companies that can deliver dividend increases for longer than a typical length of the average economic cycle.

I am looking for companies that can grow earnings and dividends, even during a recession.

The companies that have a ten year streak of annual dividend increases, which also raised dividends last week include:

Badger Meter, Inc. (BMI) manufactures and markets flow measurement, quality, control, and communication solutions in the United States, Asia, Canada, Europe, Mexico, the Middle East, and internationally.

The company raised its quarterly dividend by 11.10% to 20 cents/share. This marks the 29th consecutive year of increasing the dividend. Over the past decade, this dividend champion has managed to grow dividends at an annualized rate of 10.40%.

“Today’s 11% dividend increase marks the company’s 29th consecutive year of increasing its dividend, and is a true testament to our legacy of consistently rewarding our shareholders. Dividends are an important element of the Company's balanced and disciplined approach to capital allocation, and a reflection of the strong confidence that Badger Meter has in our ability to continue to generate and grow our earnings and cash flow both organically and via acquisition,” said Kenneth C. Bockhorst, Chairman, President and Chief Executive Officer. (press release)

Between 2011 and 2020, the company managed to grow earnings from 64 cents/share to $1.69/share.

The company is expected to earn $1.96/share in 2021.

The stock is selling for 53.38 times forward earnings and yields 0.69%.

Broadridge Financial Solutions, Inc. (BR) provides investor communications and technology-driven solutions for the financial services industry worldwide.

The company increased its quarterly dividend by 10.30% to 64 cents/share. The annual dividend has increased for the 15th consecutive year.

Over the past decade, Broadridge has managed to boost dividends at an annualized rate of 14.40%.

Between 2012 and 2021, this dividend achiever has managed to grow earnings from 97 cents/share to $4.65/share.

The company expects to earn $6.45/share in 2021.

The stock is selling for 26.81 times forward earnings and yields 1.48%.

International Bancshares Corporation (IBOC) is a multibank financial holding company that provides commercial and retail banking services.

The company raised its semi-annual dividend by 9.10% to 60 cents/share. This marked the 12^th consecutive annual dividend increase for this dividend achiever.

Over the past decade, the company has managed to boost dividends at an annualized rate of 11.80%.

Between 2011 and 2020, the company managed to boost earnings from $1.69/share to $2.62/share.

The stock sells for 11.83 times trailing earnings and yields 2.81%.

Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids worldwide. It operates through two segments, Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS).

Nordson raised its quarterly dividend by 30.80% to 51 cents/share. This represents the 58th consecutive year of annual dividend increases for this dividend king.

Over the past decade, the company has managed to increase dividends at an annualized rate of 14.60%.

Between 2011 and 2020, Nordson managed to grow earnings from $3.25/share to $4.27/share.

The company is expected to earn $7.53/share in 2021.

STERIS plc (STE) provides infection prevention and other procedural products and services worldwide. It operates in three segments: Healthcare, Applied Sterilization Technologies, and Life Sciences.

The company raised its quarterly dividend by 7.50% to 43 cents/share.  This marked the 17^th consecutive annual dividend increase for this dividend achiever.

Over the past decade, Steris has managed to increase dividends at an annualized rate of 11.50%.

The stock is selling for 30.10 times forward earnings and yields 0.90%

Between 2012 and 2021, the company managed to grow earnings from $2.31/share to $4.63/share.

The company is expected to earn $7.72/share in 2021.

The stock is selling for 28.26 times forward earnings and yields 0.79%.

Relevant Articles:

- Seven Companies Demonstrating A Commitment to Shareholder Returns

- 44 Dividend Champions For Further Research

- Nine Companies Delivering Solid Dividend Growth

- Seven Dividend Growth Stocks Rewarding Shareholders With Raises

At the beginning of the 21st century most young people are told that social security won’t be there for them when they retire from the work force. Thus, in order to be able to completely retire from the workforce, a person has to invest as early as possible in order to take full advantage of the power of compounding.

Let’s follow the story of Erica and John. They both grew up on the same street in the same city. Their mothers gave birth to them at almost the same time. Erica and John went to the same high-school, after which their paths separated. They lost contact with each other for the next 40 years, at which point they found each other on Facebook, and met to reminiscence their childhood and talk about grandkids.

They quickly started talking about their retirement and the amount of money they had each had at the time of their retirement. John, who always saved the extra money he earned from jobs at college and his first job after college, started investing $2000/year in dividend stocks starting at the age of 18 and kept saving and investing the same amount until he was 28. At that point he had so many expenses in order to pay for the needs of his growing family that he couldn’t save anymore. Despite the fact that John couldn’t contribute any more to fund his retirement, he was very good at picking solid dividend growth stocks, and was able to generate annual returns of 10% for the next four decades.

Erica on the other hand had decided that she didn’t want to work in college since she wanted to concentrate on her studies while also enjoying the whole college experience. She then decided to go ahead and get a masters degree after which she was able to get a very good job with one of the largest companies in the USA. She did accumulate a large amount of student debt in the process, which she diligently paid off in a record time after she got her first job. After learning about the importance of saving for your own retirement, she started investing $2000/year in dividend stocks, and was able to also generate 10% in annual returns.

We then fast forward to the age of 65. At age of 65, John's net worth is 1,192,257.81. Erica's networth is $728,086.87 at the age of 65. 

Despite the fact that John had invested only $20,000 in total, versus $76,000 that Erica had invested, he was able to achieve a higher amount of wealth because he had taken a full advantage of the power of compounding by investing his hard earned money as early as his freshman year in college. Even though Erica contributed money for over 37 years her nest egg was $400,000 lower than John’s, because she had ten years less to utilize the power of compounding. You could also access the spreadsheet from here. 

The most important point from this exercise is: start investing for your retirement as early as possible! Ask your kids to invest their first paychecks from high school jobs. And most importantly, let the money compound uninterruptedly for as long as possible. And if you want to take full advantage of compounding, Turbo Charge Your Portfolio With Reinvested Dividends.

Relevant Articles:

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- The case for dividend investing in retirement

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As part of my monitoring process, I review the list of dividend increases every week. I focus my attention on the companies that have managed to increase dividends for at least a decade, when reviewing the list of dividend increases.

This helps me review existing holdings, and identify companies for further research.

Over the past week, there were several companies that raised dividends to shareholders, which also have at least a ten year track record of annual dividend increases. The companies include:

Illinois Tool Works Inc. (ITW) manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.

Illinois Tool Works increased its quarterly dividend by 7% to $1.22/share. This marked the 50th consecutive year of annual dividend increases for this newly minted dividend king. The company has managed to grow dividends at an annualized rate of 13.10% over the past decade.

Between 2011 and 2020, Illinois Tool Works managed to grow earnings from $4.19/share to $6.63/share.

The company is expected to earn $8.56/share in 2021.

The stock is selling for 26.59 times forward earnings and yields 2.14%

Dover Corporation (DOV) provides equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services worldwide.

The company raised its quarterly dividend by 1% to 50 cents/share. This marked the 66th consecutive year in which this dividend king has increased its annual cash dividend. The company has managed to grow dividends at an annualized rate of 8.20% over the past decade. The rate of dividend growth has slowed down since 2018 however.

Between 2011 and 2020, Dover managed to grow earnings from $4.74/share to $4.70/share.

The company is expected to earn $7.50/share in 2021.

The stock is selling for 22.59 times forward earnings and yields 1.18%.

Federal Realty Investment Trust (FRT) operates as a real estate investment trust, which engages in the ownership, management, development, and redevelopment of retail and mixed-use properties. 

This REIT raised its quarterly dividend by 0.90% to $1.07/share. This marked the 54th consecutive annual dividend increase for this dividend king. This Real Estate Investment Trust prides itself in its consistency of operations, which have allowed it to raise dividends for 54 years in a row. Annual distributions rose from 12 cents/share in 1967 to an estimated $4.28/share at the new distribution rate. The company has managed to grow dividends at an annualized rate of 4.70% over the past decade.

Federal Realty Investment Trust has managed to grow dividends at a rate of 5.40%/year over the past decade. This was supported by growth in Funds From Operations from $4/share in 2011 to $4.38/share in 2020. The REIT is expected to earn $4.91/share in 2021.

Currently, this REIT is overvalued at 24.70 times FFO and yields 3.53%. 

Carlisle Companies Incorporated (CSL) operates as a diversified manufacturer of engineered products in the United States, Europe, Asia, Canada, Mexico, the Middle East, Africa, and internationally. It operates through four segments: Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle Brake & Friction.

The company raised its dividend by 3% to 54 cents/share. This marked the 45th year of consecutive annual dividend increases for this dividend champion. The company has managed to grow dividends at an annualized rate of 12% over the past decade.

Between 2011 and 2020, Carlisle managed to grow earnings from $2.86/share to $5.80/share.

The company is expected to earn $9.05/share in 2021.

The stock is selling for 22.70 times forward earnings and yields 1.05%.

Fidelity National Financial, Inc. (FNF) provides various insurance products in the United States. The company operates through Title, F&G, and Corporate and Other segments.

Fidelity National Financial increased its quarterly dividend by 11.10% to 40 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever.

Between 2011 and 2020, Fidelity National Financial managed to grow earnings from $1.65/share to $4.99/share.

The company is expected to earn $6.51/share in 2021.

The stock sells for 7.18 times forward earnings and yields 3.42%.

Terreno Realty Corporation (TRNO) acquires, owns and operates industrial real estate in six major coastal U.S. markets: Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, D.C.

Terreno Realty increased dividends by 17.20% to 34 cents/share. This marked the tenth year of consecutive annual dividend increases for this newly minted dividend achiever. 

The company is expected to generate $1.70/share in FFO in 2021.

The stock is selling for 40.11 times forward FFO and yields 2%.

NewMarket Corporation (NEU) engages in the petroleum additives businesses.

The company raised its quarterly dividend by 10.52% to $2.10/share. This marked the 16th year of consecutive annual dividend increases for this dividend achiever.  The company has managed to grow dividends at an annualized rate of 17.60% over the past decade. The rate of dividend growth has slowed down to 6.30% in the past 5 years however.

Earnings per share grew from $15.09 in 2011 to $24.64 in 2020. 

The stock is selling for 12.60 times earnings and yields 2.56%.

A dividend champion is a company which has managed to raise annual dividends for a minimum of 25 years in a row. There are 142 companies in the US that are dividend champions.

The dividend champions list is one of my favorite lists to research. You can download it from this website.

It includes a lot of data, which can be used to identify companies for further research.

I recently obtained the list of Dividend Champions as of July 2021, and ran a simple screen, in order to identify companies that grew dividends at a fast pace.

I narrowed my search to:

1) Dividend champions, which are companies that have a 25 year track record of annual dividend increases

2) Companies with a ten year annualized dividend growth of 10%

I am looking for companies with a long streak of annual dividend increases, because I am looking for sustainable long-term dividend growth and total returns. My goal is to identify a group of companies to hold for the long run. I am not interested in identifying a company that I would then have to sell a few years later. That’s inefficient use of my time and could lead to a lot of taxes, especially if I sell stock with large unrealized capital gains.

The list of the 44 companies that fit the two criteria can be found below:

The average yield as of July 31, 2021 is 1.96% and the average 10 year dividend growth is 13.41%.

When I start digging further and also looking at 5 year dividend growth that also exceeds 10%/year , I see that the list of companies drops down further to 26. That just goes to show you that a ten year high growth may hide the fact that recent dividend growth has slowed down. So you need to check for recent dividend growth, trends in earnings per share, trends in payout ratios as well as valuation. Investing is part art and part science.

As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention on the list of companies that have managed to boost distributions for at least a decade.

I have compiled the list of companies that have raised dividends for at least a decade, which also managed to boost dividends last week. The one exception was Mondelez, which I wanted to highlight since I own it. 

The companies for this weeks report include:

Cintas Corporation (CTAS) provides corporate identity uniforms and related business services primarily in North America, Latin America, Europe, and Asia. It operates through Uniform Rental and Facility Services and First Aid and Safety Services segments.

Cintas raised its quarterly dividend by 26.70% to 95 cents/share. This marks the 38th consecutive year of annual dividend increases for this dividend aristocrat. The company switched from making annual payments in 2020 to paying dividends quarterly.

Over the past decade, Cintas has managed to grow dividends at an annualized rate of 19.30%.

Cintas has managed to grow earnings from $2.27/share in 2012 to $10.24/share in 2021.

Cintas is expected to earn $10.64/share in 2022.

The stock is selling for 36.70 times forward earnings and yields 0.97%.

Mondelez International, Inc. (MDLZ) manufactures, markets, and sells snack food and beverage products worldwide.

The company raised its quarterly dividend by 11.10% to 35 cents/share. The company has hiked its quarterly dividend every single year since it split from Kraft Foods in 2012. Mondelez has managed to grow dividends at an annualized rate of 12.80% over the past 5 years.

Mondelez has managed to grow earnings from $2.01/share in 2011 to $2.69/share in 2020.

Mondelez is expected to earn $2.92/share in 2021.

The stock is selling for 21.69 times forward earnings and yields 2.21%.

McKesson Corporation (MCK) provides healthcare supply chain management, retail pharmacy, community oncology and specialty care, and healthcare information solutions in the United States and internationally. It operates through four segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions (RxTS)

The company raised its quarterly dividend by 11.90% to 47 cents/share. This dividend achiever has managed to increase annual dividends for 14 years in a row. McKesson has managed to grow dividends at an annualized rate of 9.60% during the past decade.

McKesson is expected to earn $19.08/share in 2022. For comparison purposes, the company’s earnings per share went from $5.59 in 2012 to $4.95/share in 2020. The company lost $28.26/share in 2021.

The stock is selling for 10.70 times forward earnings and yields

UMB Financial Corporation (UMBF) operates as the bank holding company for the UMB Bank that provides various banking and other financial services.

The company raised its quarterly dividend by 15.60% to 37 cents/share. This was the 30th year of consecutive annual dividend increases for this dividend champion.

Over the past decade, the company has been able to grow dividends at an annualized rate of 5.30%.

UMB Financial managed to grow earnings from $2.64/share in 2011 to $5.93/share in 2020. The company is expected to earn $7.16/share in 2021.

The stock is selling for 13.08 times forward earnings and yields 1.58%.

Republic Services, Inc. (RSG) provides non-hazardous solid waste collection, transfer, disposal, recycling, and environmental services in the United States.

The company raised its quarterly dividend by 8.20% to 46 cents/share. This is the seventeenth consecutive year of increasing the dividend for Republic Services. Over the past decade, the company has been able to grow dividends at an annualized rate of 7.90%.

Between 2011 and 2020, this dividend achiever has managed to grow earnings from $1.56/share to $3.02/share.

Republic Services is expected to earn $3.85/share in 2021.

The stock is selling for 29.95 times forward earnings and yields 1.47%.

The Hershey Company (HSY) manufactures and sells confectionery products and pantry items. The company operates in two segments, North America; and International and Other.

The company raised its quarterly dividend by 12% to 90.10 cents/share. This marked the 12th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has been able to grow dividends at an annualized rate of 9.40%.

Between 2011 and 2020, Hershey managed to increase earnings from $2.74/share to $6.11/share.

Hershey is expected to earn $6.89/share in 2021.

The stock is selling for 25.62 times forward earnings and yields 1.82%.

KLA Corporation (KLAC) designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide.

The company raised its quarterly dividend by 17% to $1.05/share.

This is the twelfth consecutive dividend level increase for this dividend achiever.

Between 2011 and 2020, the company managed to grow earnings from $4.66/share to $7.70/share.

The company is expected to earn $14.12/share in 2021.

The stock is selling for 22.34 times forward earnings and yields 1.14%.

American States Water Company (AWR) provides water and electric services to residential, commercial, industrial, and other customers in the United States. It operates through three segments: Water, Electric, and Contracted Services.

The company raised its quarterly dividend by 9% to 36.50 cents/share. This dividend king has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year for 67 consecutive years.

Between 2011 and 2020, the company managed to increase earnings from $1.21/share to $2.33/share.

American States Water Company is expected to earn $2.43/share in 2021.

The stock is selling for 36.35 times forward earnings and yields 1.65%.

Diageo plc (DEO) produces, markets, and sells alcoholic beverages. 

The company increased its Final Dividend by 5% to 44.59 British Pence/share. Diageo had raised its interim dividend by only 2% in the Spring. The total annual dividend in 2021 is 3.82% higher than the total annual dividend paid in 2020.

Diageo has managed to increase dividends annually since at least 1998.

The stock sells for 27.45 times forward earnings and yields 2%.

Since 1960s, dividends have increased at a steady pace. Perhaps due to inflation, perhaps due to the end of the Gold Standard, perhaps due to changes in the types of industries.

As an investor, I buy shares in companies that sell goods and services to consumers, and earn a profit in the process. Many of these companies have competitive advantages, which would allow them to pass on any sustainable cost increases to the final customers by raising prices. 

This means that equities could turn out to deliver a good inflation protection. If companies grow earnings, they can distribute more to shareholders in the form of dividends. In other words, dividends tend to produce a stream of income that protects against inflation.

I looked at the data for S&P 500 dividends since 1960 in order to test this hypothesis. (Source)

I also obtained data on annual inflation in the US. (source)

It does seem that dividends have managed to exceed inflation in each decade since 1960. The exception is in the 1970s, when dividends trailed slightly behind inflation. However, stock prices lost a lot more ground to inflation.

I tried to look at it by breaking it down by years. The period of high inflation in the US was between 1966 – 1981. During that time, inflation was just slightly above dividend growth. But if you spent dividends you largely maintained standard of living.

If we looked at real stock prices between 1965 and 1981 however, the picture is much worse. The inflation adjusted stock price, as indicated by S&P 500, decreased by 50% between 1965 and 1975 and stayed there till 1981. This means that if you held stock that could purchase $100,000 worth of goods in 1965, by 1975 that same basket of stocks could buy half of what you could buy before.

Overall, dividends have managed to provide a good protection against inflation. That being said, while dividends provide good inflation protection over time, that may not hold true in every single year. The period from 1965 - 1975 clearly indicates this.

The question for me is how would this affect me if I were retired and living off dividends between 1965 - 1975. I would probably have to look for ways to cut expenses in some areas, but not in others. The nice thing is that my personal basket of goods and services used will be different than the basket measured using CPI. 

I can always try to adjust my spending and my budget. For example, if travel was a big expense, I may spend less time travelling to expensive destinations like Paris, France and go to cheaper locations. I may go for switching brands or I may go for stocking up on certain items earlier in the year. Of course, certain expenses like healthcare are more difficult to manage and forecast too. 

In addition, while I used S&P 500 dividends as a proxy for dividend incomes in general, this is just a proxy. The portfolio of companies I would have invested in may have generate a dividend income stream that provides a better protection against inflation ( though it could be worse too if I chose poorly). Not all S&P 500 companies are dividend growth type however. The index includes a lot of cyclical names like U.S. Steel or General Motors, which tend to cut dividends during recessions, and are not dividend growth stocks. I tend to focus my attention on the companies that grow dividends annually, and have a track record for doing so. It also helps to analyze these companies, in order to understand if they can keep growing earnings and dividends. Having a competitive advantage, a strong brand name and a leadership position are big pluses in my book.

If I focus my attention on companies that grow dividends each year, I stand a better chance of growing my dividend income and protecting it against the ravages of inflation.

I obtained the historical dividends for three dividend growth stocks I thought about at the top of my head. I would argue that these are prominent large cap companies that have been prominent large and established companies for many decades, so it is reasonable to conclude that an investor would have had a chance of selecting them 55 years ago.

For example, Johnson & Johnson (JNJ) managed to grow real dividend income by a factor of 5 during the 1965 - 1981 period

Procter & Gamble shareholders also saw a gradual increase in their inflation-adjusted dividend income, albeit at a much slower pace than Johnson & Johnson. 

Coca-Cola shareholders also saw a gradual increase in their inflation-adjusted dividend income, albeit at a much slower pace than Johnson & Johnson, but faster than Procter & Gamble.

Thank you for reading. Please let me know what you think in the comments below.

Relevant Articles:

- A Look Under the Hood For Inflation

- Dividend Growth Stocks Protect Investors from Inflation

Stanley Black & Decker, Inc. (SWK) engages in the tools and storage, industrial, and security businesses worldwide.

The company raised its quarterly dividend by 12.90% to 79 cents/share just last week. This marked the 54th consecutive annual dividend increase for this dividend king.

Stanley Black & Decker's CEO, James M. Loree, commented, "I am pleased to continue our trend of consecutive annual dividend increases, which reflects the continued confidence we have in the cash generation potential of the company.  A strong and growing dividend is a key element of our shareholder value proposition, and is consistent with our capital deployment philosophy to deliver approximately half of our excess capital to shareholders over the long term." (source)

Over the past decade, Stanley Black & Decker managed to grow dividends at an annualized rate of 7.60%.

Between 2011 and 2020, earnings per share grew from $3.97 to $7.77. The company is expected to generate $11.21/share in 2021.

The company has managed to grow through acquisitions, notably the merger between Stanley Works and Black & Decker in 2010. In 2017 it acquired the Craftsman brand from Sears. It actively manages its portfolio of products. Growing the businesses through M&A is central to the company’s strategy

The company is looking to increase efficiencies in the supply chain to reduce cost, and increase sales in emerging markets. About 59% of sales comes from the US, 4% in Canada, 24% Europe, 8% Asia. 

Stanley Black & Decker is also focused on growing its e-commerce sales, which account for $2 billion out of its $14 billion in sales.

The company is organized in three segments.

Tools & Storage accounts for 71% of sales and 80% of operating profits. The company is a leader in tools and storage. It has a portfolio of brands that tradespeople and DIY folks rely on. We are speaking about hand tools, power tools like DeWalt, Craftsman, Black & Decker etc.

Industrial accounts for 16% of revenues and 12% of operating profits. It builds solutions like preferred engineered fastening solutions in automotive and industrial channels to inflastructure solutions like hydraulic tools and attachments.

Security accounts for 13% of revenues and 8% of operating profits. The company delivers peace of mind with advanced electronic safety, security and monitoring solutions, automatic doors, and sophisticated patient safety, asset tracking and productivity solutions.

I believe that a picture is worth 1,000 words. Which is why I am including this slide from their annual report, which summarizes their value creation model.

Source: Company's Annual Report

The company managed to reduce the number of shares outstanding between 2011 and 2016 from 170 million to 148 million. Shares outstanding are up since then due to acquisitions.

The payout ratio has largely remained between 30% and 45%, with the exception of two spikes in 2013 and 2018. Those were triggered by one-time accounting items affecting earnings per share in each of those two years.

One of my favorite charts shows a listing of eleven consumer goods companies, and the brands that they own. It reinforces my belief that strong brands grow dividends.

You can view this chart from here:

Source: Brewminate

This illustration shows these massive companies that control large portions of a given segment of the market. While the sheer number of brands creates the illusion that there is unlimited choice, the reality is that just a few brands control what you buy on a regular basis. It looks like there is a lot of competition, when in reality just a few companies control a lot of the brands we purchase. The sheer reach of brands is fascinating. 

This is understandable, given the fact that many companies own brands that target different segments. Many of these companies have established relationships with retailers for shelf space. Many of these retailers value these brands, because consumers expect to see them, and want them. It is a mutually beneficial relationship.

This of course is a result of creating new brands from scratch, as well as decades of consolidations through mergers and acquisitions.

As an investor, I like looking at companies with solid brands that consumers buy on a recurring basis. I also like the consumer goods companies, because they sell goods that consumers would buy even during a recession. I like companies with large brands that have a dominant position, because I believe that a successful company that has been successful for a long time would likely continue being successful in the future.  Having scale is helpful in procuring the lowest per unit costs, as you have centralized marketing, purchasing and distribution. The more successful you get, the more you stack the odds in your favor.

The companies listed in this chart represent some good ideas for further research. They are not automatic buys of course. When I evaluate companies, I generally like to look for:

1) A track record of annual dividend increases

2) Growth in earnings per share over the past decade

3) Growth in dividends per share over the past decade

4) Dividend sustainability

5) Good entry valuation

I like the stability of their business models. These companies do well in a slow but steady way, and navigate near term economic turbulent nicely. While past performance is not indicative of future results, I believe that these companies would still be dominant in the next 50 years. If you are reading this in 2071, please let us know how this prediction turned out.

The companies included in the chart are:

Coca-Cola (KO) is a beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. 

The company is a dividend king with a 59 year track record of consecutive annual dividend increases. Over the past decade, Coca-Cola has managed to grow dividends at an annualized rate of 6.40%.

The stock sells for 25.53 times forward earnings and yields 3.01% today.

Unilever (UL) operates as a fast-moving consumer goods company. It operates through Beauty & Personal Care, Foods & Refreshment, and Home Care segments.

Unilever is an international dividend achiever, which has increased dividends for 25 years in a row. Unilever has managed to boost dividends at an annualized rate of 7.20% over the past decade.

The stock sells for 20.33 times forward earnings and yields 3.43% today.

PepsiCo (PEP) operates as a food and beverage company worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region. 

The company is a dividend aristocrat with a 49 year track record of consecutive annual dividend increases. PepsiCo has managed to boost dividends at an annualized rate of 7.80% over the past decade.

The stock sells for 25.04 times forward earnings and yields 2.76% today.

Kellogg's (K) manufactures and markets ready-to-eat cereal and convenience foods. The company operates through four segments: North America, Europe, Latin America, and Asia Middle East Africa.

The company is a dividend achiever with an 18 year track record of consecutive annual dividend increases. Kellogg's has managed to boost dividends at an annualized rate of 3.90% over the past decade.

The stock sells for 15.94 times forward earnings and yields 3.58% today.

Mondelez (MDLZ) manufactures, markets, and sells snack food and beverage products worldwide. 

The company was formed in 2012, when Kraft Foods split into two. Mondelez has managed to increase dividends annually since the split. Over the past five years, Mondelez has managed to increase dividends at an annualized rate of 12.80%.

The stock sells for 21.94 times forward earnings and yields 1.97% today.

Johnson & Johnson (JNJ) researches and develops, manufactures, and sells a range of products in the health care field worldwide. It operates through three segments: Consumer Health, Pharmaceutical, and Medical Devices.

The company is a dividend king with a 59 year track record of consecutive annual dividend increases. Over the past decade, Johnson & Johnson has managed to grow dividends at an annualized rate of 6.60%.

The stock sells for 17.47 times forward earnings and yields 2.54% today.

Nestle (NSRGY) operates as a food and beverage company. 

Nestle is an international dividend aristocrat, which has managed to increase dividends annually since 1995. It has managed to boost dividends over the past decade at an annualized rate of 4%. Check my analysis of Nestle for more information about the company.

The stock sells for 26.07 times forward earnings and yields 2.38% today.

Procter & Gamble (PG) provides branded consumer packaged goods to consumers worldwide. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care.

The company is a dividend king with a 65 year track record of consecutive annual dividend increases. Over the past decade, Procter & Gamble has managed to grow dividends at an annualized rate of 5.20%.

The stock sells for 24.96 times forward earnings and yields 2.48% today.

Kraft Heinz (KHC) manufactures and markets food and beverage products.

Mars Inc is a privately held company. It's owned by members of the Mars family.

As part of my monitoring process, I review the list of dividend increases every week This activity helps me to monitor the business performance of any companies I am invested in. It also helps me to identify any hidden dividend gems, and place them on my list for further research.