I review the list of dividend increases as part of my monitoring process. This allows me to see how the companies I own are doing. It also lets me uncover companies for further research.

This process also allows me to share the quick review I make for each company I stumble upon. It provides me with an idea of whether I want to research any further, or move on to other ideas.

In general I look for:

1) At least a ten year track record of annual dividend increases or longer

2) Growing earnings per share

3) Consistent dividend increases

4) Margin of safety to ensure dividend safety

5) Good valuation

During the past week, there were several companies that raised dividends, which also had a ten year track record of annual dividend increases. I will be reviewing them with the five step guidelines above, before deciding if I want to research them any further.

The companies raising dividends last week include:

Company	Ticker	New Dividend	Old Dividend	Increase	Years Dividend Increases	P/E	Dividend Yield	10 year Annualized Dividend Growth
Sierra Bancorp	BSRR	$    0.23	$    0.22	4.55%	10	9.74	3.35%	13.61%
Delek Logistics Partners	DKL	$   0.975	$   0.95	2.63%	10	10.52	9.12%	8.40%
Consolidated Edison	ED	$    0.79	$    0.78	1.28%	48	19.51	3.82%	2.59%
Fastenal	FAST	$    0.31	$    0.28	10.71%	24	31.60	2.19%	15.61%
J.B. Hunt	JBHT	$    0.40	$    0.30	33.33%	18	22.98	0.80%	8.54%
Alliant Energy	LNT	$0.4275	$0.4025	6.21%	19	22.63	2.86%	6.60%
Mercantile Bank	MBWM	$    0.31	$    0.30	3.33%	19	12.3	3.24%	40.28%

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too. For a sample analysis of Blackrock (BLK) from a few days ago, check this article. 

Relevant Articles:

- Four Companies Rewarding Their Thankful Shareholders With a Raise

- Twelve Companies Rewarding Shareholders With a Raise

- Sixteen companies delivering value to their shareholders

Last year was a record for dividend payments in the US. I obtained data from Standard & Poor's that companies in the S&P 500 paid more than $500 billion in dividends to their shareholders.

Dividend payments on S&P 500 index by 3.62% in 2021, from $58.28 to a record of $60.39. That's the 12th consecutive year of annual dividend increases for S&P 500, meaning that the index itself is a dividend achiever.

Over the past sixty years, payments on the S&P 500 index have generally just trended upwards. The only exception was during the Global Financial Crisis, when payments decreased in 2008. Despite the Covid-19 shutdowns however, S&P 500 dividend payments rose from $58.24 to $58.28. This is impressive growth, given the fact that a lot of businesses worldwide were shut down. During the bleakest days in March and April 2020, forecasters were expecting double-digit decreases in dividends in 2020. So we pulled through.

It looks like the price of future income is definitely more expensive, because dividend yields are lower today. Of course, I can see that as I am trying to look for good quality dividend growth stocks. It is definitely getting harder to find those hidden gems and buy them at a good price today. This is where looking for individual companies may pay off today.

The one major difference between today and the period from 20 years ago is that companies tend to spend more money on share buybacks than dividends. In comparison, companies spend roughly equal amounts on dividends and buybacks about 20 years ago.

This brings me to the next point. While future dividend income is more expensive, that doesn't mean that investors should not be investing. Not investing means timing the market. It also means missing out on the power of compounding. I believe that investors should be investing when they have money to invest, in the best values they can find at the time. 

The current environment definitely shows the importance of focusing on items within your control. While I do not know if a company would do well over the long-run, I can focus on factors within my control.

For example, I can require quality from the companies I invest in. I can require growth in earnings per share, and an adequate coverage in the dividend payout ratio. I can also be somewhat choosy about the valuation as well.

Most importantly, it would also mean ensuring that I keep investment costs low.  If I buy a stock yielding 3%, and I pay a 1% fee to a financial advisor or a mutual fund manager, I am effectively losing a third of income. 

In addition, if I pay a 15% tax on those dividends, I lose out on 15% of income. I can reduce that by prioritizing investing through tax-deferred accounts such as a Roth IRA for example.

Another item within my control is my savings rate. When I earn less in dividend income from the same amount of money as I did before, I should try to cut costs and increase income in order to be able to save more money.

A dividend champion is a company which has a 25 year record of annual dividend increases. There are only 137 such companies in the US today. I believe that becoming a dividend champion is no accident, and it is a result of a strong business that has generated earnings growth for a long period of time. These are the types of businesses I like to study, and potentially consider at the right time for my dividend portfolio. I believe that the dividend champions list offers a more complete picture than the dividend aristocrats.

 Interest rates in the United States of America have been on a decline for over 40 years. 

Source: J.P. Morgan Guide to Markets

In addition, rates on long-term US Treasury Bonds, particularly the 10 and the 30 year ones have been decreasing as well. Interest coupons are correlated with returns on bonds. Therefore, if you invest in a 30 year US Treasury bond yielding 2.10% today that you hold for 30 years, you are unlikely to generate more than 2.10%/year.  This means that on a $100,000 investment, you are unlikely to generate more than $2,100/year in interest income. 

Source: Bloomberg

This income is taxed at ordinary tax income rates, and is fixed. It won’t grow to compensate for the loss of purchasing power due to inflation. Treasury Inflation Protection Bonds and iBonds exist, but these don’t yield much. They will likely protect principal at most.

Of course, US bond investors are lucky. The rest of the developed world has long-term bonds which yield practically nothing.

Source: J.P. Morgan Guide to Markets

If you are a saver, the only alternative you have to generate income, and protect principal against inflation is in equities. This means that investors have to take on risk in order to generate an adequate return.

Some may argue that this risk on environment has pushed valuations higher, and therefore future returns lower. It has certainly pushed down yields on US equities, as shown by S&P 500. 

Source: Standard and Poor's

Of course, as investors, we take a DIY approach where we select companies individually, based on our own parameters for our strategies. I believe it is possible to build a portfolio today that would yield around 3% today, whose dividend income would outpace inflation in the long-run, and which would likely grow earnings and share prices in the long-term as well.

It is better to generate some return on investment by investing in equities rather than slowly lose purchasing power to inflation by lending money to the US Government.

To illustrate the dilemma, I compared the yields on US Treasury bonds to the average yield on the 63 Dividend Aristocrats ( They removed AT&T at the end of 2021 and also removed Legett & Platt because it was kicked out of S&P 500).

I believe that the 63 Dividend Aristocrats today offer a better alternative for a long-term investor with a 20 or 30 year timeframe than an investment in US Treasury Bonds over the same time period.

Source: Dividend Growth Investor/Standard and Poor's

The average yield on the dividend aristocrats is 2.22% today. The P/E is at 19 today, according to Morningstar, which is not too high. It brings in some margin of safety in case rates revert back to a more normal 4% - 5%. 

These companies are likely to grow earnings, dividends and share prices over the next 20 – 30 years easily. If a company yields 2% today, but grows dividends at 7%/year, it could double dividends in roughly a decade. This means that the yield on cost would rise to:

• 4% in 10 years
• 8% in 20 years
• 16% in 30 years

If dividends grow above the rate of inflation over the next 20 years, as they have historically, then the purchasing power of that income will be maintained and even increased. If earnings grow as well, this means that the value of the investment would also maintain purchasing power as well. While stock prices fluctuate in the near term, in the long-run they follow the trend in earnings. Therefore, a patient long-term investors would have a chance of the best of both worlds – generating an inflation adjusted stream of income while also growing purchasing power of their capital as well. To add to that, qualified dividends and long-term capital gains are taxed at preferential rates today.  Taxes can be managed of course, by using a retirement account for example. Of course, the risk with Equities is that earnings and dividends do not grow, and share prices do not grow either. Nothing is guaranteed. However, I do believe that taking a risk by investing in equities today is less risky for the long-term investor than not taking a risk at all.

Investors in 30 year US Treasury Bonds are essentially locking in 2.10% for the next 30 years. That coupon will not increase, but is guaranteed by the US Government. However, it is very likely that the purchasing power of that income and the purchasing power of that principal would be much lower in 30 years. Furthermore, this income will be taxed at ordinary income tax rates. However, taxes can be managed too.

What is the point of this article?

It shows me that equities are better investments thant fixed income for someone with a 20 – 30 year horizon. They are likely to generate growth in earnings over time, which would grow dividends and share prices. This would maintain and even increase purchasing power of dividend income and capital invested.  This has been the case for the past decade.

While equities may seem expensive at 20 – 24 times earnings, this is equivalent to an earnings yield of 4% to 5%. This is higher than interest yields of 2%. It also provides margin of safety in case interest rates revert back to 4% - 5%, because it shows that P/E multiples on average would not contract by much.

I believe that a prudent investment method would be to invest in dividend growth stocks, such as the Dividend Aristocrats. That’s because these companies have a proven track record of growing dividend income throughout various economic and business conditions. They also have a track record of growing earnings and are likely to grow share prices too. Of course, not all companies on the Dividend Aristocrats list are buys today. The investor would have to evaluate each company in order to determine if:

- They can grow earnings, in order to grow the dividend

- The payout ratio is adequate and dividends are not in danger of a cut

- Valuation is adequate

In order to keep costs low, I would focus on avoiding ETF charges and stock commissions. I would also focus on investing through tax-deferred accounts, in order to keep taxes low. It does pay to be selective however.

Relevant Articles:

- Dividends Stocks versus Fixed Income

- The case for dividend investing in retirement

- Fixed Income for dividend investors

- Does Fixed Income Allocation Make Sense for Dividend Investors Today?

- Eight Dividend Stocks Yielding More than Fixed Income

 Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company is a dividend achiever with a thirteen year track record of annual dividend increases. 

During the past decade, the company has managed to increase dividends at an annualized rate of 3.47%. The last dividend increase was in December 2021, when the company increased its quarterly dividend by 10.20% to 54 cents/share. I believe that future dividend growth will be higher than historical growth, due to the acquisition of Celgene.

Either way, the company is expected to grow Non-GAAP earnings per share to $7.35-$7.55/share by 2021.

Earnings per share will grow from finding new drugs, raising prices on existing ones, selling more, strategic acquisitions, and cutting costs. 

In 2019, Bristol-Myers Squibb acquired Celgene for cash and stock. This diversified its drug portfolio, and provided an additional margin of safety against patent cliffs. 

This deal was accretive to Bristol-Myers due to the fact that the P/E paid for Celgene was lower than the one that BMY stock had; In addition, the part that was financed through debt was accretive, because debt is very cheap today, and is well supported by the company’s strong cash flows. The company is also taking strides to repay it. 

The company has six novel compounds in either early-stages of marketing or late-stages of R&D. These new drugs are mostly in the large market therapeutic areas of oncology and immunology.

While the company has a pipeline of drugs in different stages of approval, there is always the risk of regulatory delays and the risk that they fail to deliver what they were supposed to. Once a drug is approved, it offers its owners the right to be the exclusive seller for a 20-year period of time. This exclusivity comes to an end however, at which point branded drugs lose out market share to cheaper generic drugs. 

It is also projected to generate cost savings or synergies. After all, the company gets to reduce headcount, decrease other expenses in the process, and generate incremental returns due to higher scale of operations. Of course, there is always integration risk, or the risk that the acquisition doesn’t turn out as expected, and the synergies that were expected do not get realized.

The number of shares outstanding decreased from 2 billion in 2008 to 1.637 billion by 2018. The acquisition of Celgene in 2019 has increased the number of shares outstanding to 1.712 billion in 2019 and increased it further to 2.258 billion in 2020.

 A dividend king is a company that has managed to increase dividends to shareholders for at least 50 years in a row.

There are only 37 such companies in the US, and perhaps a couple more in the rest of the world. It is not a small achievement to have been able to reward long-term shareholders with a dividend raise for over half a century.

Over the past 50 years, some calamities experienced include:

- Seven Recessions since 1967
- The Vietnam War
- The oil crisis in the 1970s
- Stagflationary 1970s
- Double digit interest rates in the 1980s
- Fall of the Soviet Union in 1991
- 9/11 in 2001
- The Dot-com bubble bursting in 2000
- The housing bubble bursting in 2007 - 2008
- ZIRP and NIRP since 2009

- The Covid-19 Pandemic

Company Name	Symbol	Sector	Years Dividend Increases	10 Year Annualized Dividend Growth	Dividend Yield	Share Price
ABM Industries Inc.	ABM	Industrials	54	3.20%	1.69%	45.00
American States Water	AWR	Utilities	67	9.43%	1.55%	94.18
Becton, Dickinson	BDX	Health Care	50	8.02%	1.47%	237.14
Black Hills Corp.	BKH	Utilities	51	4.19%	3.71%	64.12
Commerce Bancshares	CBSH	Financials	53	6.47%	1.50%	69.8
Cincinnati Financial	CINF	Financials	61	4.06%	2.21%	113.9
Colgate-Palmolive Co.	CL	Consumer Staples	58	5.60%	2.40%	75.02
California Water Service	CWT	Utilities	54	3.63%	1.46%	63.01
Dover Corp.	DOV	Industrials	66	8.22%	1.22%	163.85
Emerson Electric	EMR	Industrials	65	4.03%	2.35%	87.84
Farmers & Merchants Bancorp	FMCB	Financials	59	2.50%	1.62%	965.04
Federal Realty Inv. Trust	FRT	Real Estate	54	4.74%	3.49%	122.67
H.B. Fuller Company	FUL	Materials	52	8.84%	0.92%	73.16
Genuine Parts Co.	GPC	Consumer Discretionary	65	6.75%	2.55%	127.74
W.W. Grainger	GWW	Industrials	50	11.06%	1.35%	481.41
Hormel Foods Corp.	HRL	Consumer Staples	54	16.04%	2.51%	41.4
Johnson & Johnson	JNJ	Health Care	59	6.55%	2.72%	155.93
Coca-Cola Company	KO	Consumer Staples	59	6.42%	3.20%	52.45
Lancaster Colony Corp.	LANC	Consumer Staples	59	8.77%	2.19%	146.2
Leggett & Platt	LEG	Consumer Discretionary	50	4.30%	4.16%	40.39
Lowe's Companies	LOW	Consumer Discretionary	59	18.85%	1.31%	244.59
3M Company	MMM	Industrials	63	10.84%	3.48%	170.04
Altria Group Inc.	MO	Consumer Staples	52	9.06%	8.44%	42.64
MSA Safety Inc.	MSA	Industrials	50	5.62%	1.23%	143.32
Nordson Corp.	NDSN	Industrials	58	14.65%	0.80%	254.19
National Fuel Gas	NFG	Utilities	51	2.61%	3.15%	57.81
Northwest Natural Gas	NWN	Utilities	66	1.30%	4.48%	43.12
Procter & Gamble Co.	PG	Consumer Staples	65	5.16%	2.41%	144.58
Parker-Hannifin Corp.	PH	Industrials	65	12.65%	1.36%	302.06
PPG Industries, Inc.	PPG	Materials	50	6.78%	1.53%	154.17
Stepan Company	SCL	Materials	54	8.71%	1.19%	112.71
SJW Corp.	SJW	Utilities	54	6.53%	2.02%	67.35
Stanley Black & Decker	SWK	Industrials	54	7.57%	1.81%	174.76
Target Corporation	TGT	Consumer Discretionary	50	12.30%	1.48%	243.84
Tennant Company	TNC	Industrials	50	4.20%	1.27%	78.66
Tootsie Roll Industries	TR	Consumer Staples	52	4.22%	1.14%	31.45
Universal Corporation	UVV	Consumer Staples	51	4.99%	6.70%	46.57

There are five companies which are set to potentially join the elite list of dividend kings by the end of 2022. These companies have a 49 year record of annual dividend increases:

The Gorman-Rupp Company (GRC)

Kimberly-Clark Corporation (KMB)

Middlesex Water Company (MSEX)

PepsiCo, Inc. (PEP)

V.F. Corporation (VFC)

This track record is a testament to the stability of the underlying businesses that generated the earnings growth necessary to grow the dividend for half a century (and longer). This track record is an indication of a business that is relatively immune to outside shocks. This resilience throughout the period manifests itself into the long stretch of dividend increases, spanning over half a century.

While these companies are not investment recommendations, I post them as examples for further study by serious dividend investors. Studying the businesses, their industries, could give you clues as to the type of business that can flourish over a half of a century.

The chart below shows the historical performance of the Dividend Kings list since 2007. I will update the data by the end of 2020.

If you had invested an equal amount in the dividend kings list starting at the end of 2007, and made updates along the way, along with re-balancing annually to an equal weighted position, you would have done well. The dividend kings list did better than S&P 500 over time, although it did not best it every single year.

As I mentioned above, I have been compiling the list of dividend kings since 2010. To view the historical changes in the list, please follow the links below:

 I am a long-term dividend growth investor. I buy companies with a long streak of annual dividend increases, at the right valuation, and I hold them for as long as they do not cut dividends. I am a very patient buy and hold investor. My goal has always been to achieve a certain level of target dividend income. I invest with the end goal in mind, which is to generate that income to pay bills in retirement, and have it grow above the rate of inflation.

I have discussed before the process I follow to come up with investment ideas. One of the ways I come up with ideas is during my monitoring process. Every week, I compile the list of dividend increases, and focus on those companies with at least a ten year history of annual dividend increases. I want to focus on companies that have managed to raise their dividends through the ups and downs of an economic cycle. This gives me a better feel that these dividends are coming from a sustainable business model, not a company that simply got lucky. I want dividends I can count on, whether we have a recession or a boom.

My monitoring process around dividend increases helps me to see how existing portfolio holdings are doing. It also helps me identify new ideas for further research.

In general, I look at the dividend increase, and compare it to the rate of dividend growth during the past five or ten years. It is helpful to see how sticky the dividend growth rate really is.

Next, I look at trends in earnings per share, in order to determine if the dividend is on solid ground. Without growth in earnings per share, there is a natural limit to future dividend increases. This step is best done when I review trends in the payout ratio as well.

I also look at valuation, but I will have to tell you that valuation is more art than science. You have to look at trends in earnings and dividends, along with the valuation metrics such as P/E ratio and dividend yield. You also have to determine if those trends could last.

During the past week, there were several companies that met the criteria as discussed above. The companies include:

Investing is simple, but not easy. We all know that we should own great quality companies, which offer great products and services that consumer like. We also know to diversify, not trade too much, and keep investment expenses low. However, we also know that we should not overpay for quality companies as well. In addition, we know that we should not time the markets.

The fascinating part for me is that a lot of investors I speak to seem to agree with the last two statements. They know that we should not time the markets. They also know that we should not overpay for quality companies. While many investors seem to understand the theory, real world application is quite often the tough part.

The first hurdle is that waiting for a company to fall to a certain price and not investing right away is a form of market timing. This is where it is important to understand that a lot of platitudes about the stock market are just that. They are not an objective strategy to guide you through the ups and downs and the changes in the stock markets. Until you develop a strategy to invest, you would be like a blind person. Once you develop even a rudimentary strategy, and you start executing on it, you are on your way to success. This is essentially what I did between 2007 – 2008, as I was developing my screening criteria, my diversification criteria, and overall portfolio management guide.

Once you start following a strategy, the next logical step would be to keep improving on it. Continuous improvement is a management concept from Japan, which has helped a lot of companies do their best. This concept can be applied successfully to the world of investing.

I have done Dividend Growth Investing over the past 10 – 15 years, and documented my evolution on this very site here. As I kept investing, I kept noticing some recurring themes. 

Notably, I would identify great companies which checked on all of the boxes. However, I would not invest either because the yield was lower than some arbitrary measure I had set, or the P/E ratio was higher than an arbitrary measure I had set. In a way, I was timing the market. Even worse, I was not investing in some good quality companies, but buying stock in companies that appeared cheap, but they turned out to be value traps. The companies I skipped on turned out to do very well, and conquer the world. I was lucky to buy into some of them when they had temporary set-backs, like when Visa was selling around 20 times forward earnings in 2015 for example. But I also missed out on others.

This is where I will insert a few quotes from Buffett, to reiterate the point I am trying to make.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

“Time is the friend of the wonderful business, the enemy of the mediocre.”

Quite often over the past 10 – 15 years I would see a company selling a little above the top of my valuation range. I would like the company, the business, its prospects, but I would sit there, waiting for a dip that never arrived.

I realized that I had set out some screening criteria which appeared to be an example of discipline and prudence. In reality, I was a little stubborn not to invest in quality companies when presented with the opportunity.

I realized that if I identify a great company, I should just invest in it. I understand that I should not overpay dearly for a great company too. However, valuing companies is more art than science. A company with a low P/E ratio that doesn’t grow earnings is more expensive than a company with a higher P/E ratio that grows earnings. You have to take into consideration the quality of the earnings stream, the possibility for future earnings growth, the possibility for disruption down the road, how long that earnings stream can last for, and how cyclical that stream is.

In general, a lot of companies are priced fairly. You can say that a company may be overvalued by a little or undervalued by a little. It doesn’t matter, because I am not in the business of forecasting short-term fluctuations in share prices. I am in the business of investing for the long-term. So as such, I benefit from along-term trends in the business, that would lift earnings, dividends and intrinsic values. Even if I overpay slightly for a quality business, over the long-run, overpayment would turn out to be a small rounding error. The far bigger problem would be NOT investing in the first place, notably because of something.

In the long run, growth in earnings contributes more than expansion of price/earnings multiples, as evidenced by this chart from Fundsmith:

(I would add reinvested dividends too however)

All of this works however, if you are going to be a patient long-term investor who will hold through thick or thin. You will not lose hope even if a position takes 5 – 10 years to start working out. You have to understand that not all positions would work, but on the aggregate, the portfolio will work wonders for the patient and persistent investor. This eliminates a large portion of the population however.

This also works great for investors who buy every month. In my opinion, the ability to invest every month is more important than the ability to buy and the bottom and sell at the top. In other words, time in the market beats timing the market. At least that's what my research found out.

I intuitively understood that Regular Investing Beats Buying At The Bottom Every Time, as illustrated by my example with Johnson & Johnson (JNJ). But crunching some numbers above helped solidify my understanding even better.

The exercise that really opened my eyes was when I played some more with some historical data.

I compared a few different scenarios, in order to see if I can optimize my current situation. 

I compared investing a lump sum at the beginning of the year with spreading it over the next 12 months. It turned out that lump-sum investing did better than spreading it over. Check this article on dollar cost averaging versus lump sum investing:

This is successful, because the US market historically goes up. That’s because earnings go up, companies pay dividends that go up and they get reinvested. Earnings that are not distributed are reinvested as well, which further grows business earnings power ( on aggregate). If you look at historical data, US markets are up in 70% of the years. That’s a very strong long-term tailwind. Yes, there will be days, months, years and perhaps even a decade where stocks go nowhere. Example was the 1930s, 1970s and 2000s. But the probability of a higher decade is much higher than for a lower decade. On a random day, there is just a 50% probability that stocks would go up or down. But on an annual or decade basis, it is 70% to 80%.

I did this on purpose, because a lot of readers have kept asking me if they should wait for a market crash or a decline, before they put money to work.

I also tested whether it makes sense to buy at the top each month, at the bottom each month or jut at the closing price for an index fund. This is a proxy for a stock portfolio. Turns out that being always wrong each month or always right each month is just overrated. The goal is to select good quality companies, and buy them each month whenever you have money to invest. Instead of waiting for a dip, buy when you have money to invest.

This approach works best for someone like me, who is investing every month, and is buying several companies for their portfolio on a regular basis.

For the past several years, whenever I have had money to invest, and quality companies to invest in, I would just invest in it.

What is the point of this article?

Investing is difficult. We do not know exactly how the future would turn out. Nobody really knows for sure if a stock is cheap today or expensive. This is why our valuation techniques should be questioned constantly, because they are prone to error.  A company with a low P/E may turn out to be more expensive than a company with a high P/E, if the latter grows earnings and the former doesn’t.  It’s a balancing act, where we do not want to chase yield or chase growth and overpay for it. Valuation is part art, part science, which is why formulaic investing can fail you, if you do not have enough fail safe mechanisms in place. Selecting quality companies is a good start, as is diversifying across companies, industries, and time. Continuously reviewing investments, and your process, can help identify improvement opportunities.

In my case, I still start my review by looking at growth in earnings per share, dividends per share, dividend payout ratio, buyback history. I also look at trends in P/E ratios over the past decade, in addition to P/E ratios along with dividend growth to make a quick estimate of company quality, profitability and possibility for this future growth to continue. I have realized that having a minimum yield is counter-productive, so I have eliminated that from my process. I have also realized that having a P/E of 20 is overly limiting as well, so I have removed that from my process as well. That doesn’t mean I will be willingly paying 40 times earnings for a company. But I would consider paying up to 30 times forward earnings for a quality company that can grow earnings over the future. Investing is all about finding the right balance in my opinion, and not being too rigid. But not being too complacent either. 

In my case, it is also easy to just invest in a lot of companies every month, through the ups and downs. This is a smoothing mechanism, that takes care of things for me. I have also increasingly started DRIPing my dividends, rather than pool them and allocate them manually.

The goal of this exercise is to overcome my fears, and invest decisively, without paralysis by analysis.

So next time I identify a quality company with good prospects that’s not excessively expensive, I will think of the following right before I click the “buy” button:

“Just do it”

Warren Buffett’s Berkshire Hathaway just received a  dividend check for $168 million dollar from Coca-Cola.

Berkshire Hathaway owns 400 million shares of Coca-Cola (KO), which are projected to generate $672 million in annual dividend income. 

This comes out to roughly $1.841 million in dividend income per day, $76,712 dollars in dividend income per hour, $1278 dollars in dividend income for Berkshire Hathaway every minute, or almost $21.31 every single second. 

 As part of my review process, I evaluate dividend increases every week. This process helps me to see how my portfolio holdings are doing. It also helps me to uncover and review new candidates for my portfolio.

I look for dependable dividends from companies with a minimum ten-year streak of annual dividend increases, fueled by earnings growth. I look for dependable dividends from companies with dependable earnings, and solid competitive advantages, which I can acquire at attractive valuations.

During the past week, the following companies increased dividends to shareholders. Each company has a ten year streak of annual dividend increases. I review the latest dividend increase relative to the ten year average, and the growth in earnings per share over the past decade. Last but not least, I discuss current valuation. The companies include:

As a dividend growth investor, my goal is to buy stock in a company that fits certain criteria.

In general I look for:

- A streak of consecutive annual dividend increases

- Rising earnings per share over the past decade

- A dividend payout ratio that is not too high 

- An attractive valuation

Once I see this, the goal is to accumulate a position, and sit tight. In a way, I am a long-term investor and will hold on for a long time for as long as the dividend is growing. In a way, I follow long-term trends for as long as they persist. The second they are over however, I exit and look for greener pastures. If the trend resumes, I will get back in.

A lot of investors tend to focus on narratives, which are stories told to defend ideas. Narratives can be helpful, but only if supported by objective data behind them. Otherwise, they are fairy tale stories. As an investor, I am always on the lookout to determine if the story is still ongoing and thesis is still accurate. While I like looking at historical research, I also need to be aware that things may change. If they do, then I need to recognize this and allocate funds elsewhere.

I’ve made some changes over the past 15 years at Dividend Growth Investor, albeit gradually. I started off with a fairly fixed screening criteria. I had been lucky, because my strict criteria helped me find a lot of great companies at attractive valuations in the beginning of my journey. They did well subsequently for the most part. But I've had to adapt over the years, due to many changes.

I have since relaxed the need for a minimum dividend yield. I have also relaxed the need to look for companies with a P/E of less than 20. Now I look at P/E and growth and quality and defensibility of the earnings stream together. This is driven by the changes in the marketplace today, the availability of quality companies at bargain valuations, and the rise in interest rates. Most importantly, it is driven by my research on historical dividend growth success stories, and not wanting to miss out on the next Wal-Mart for example. But change is a given, not just for my strategy, but the world at large.

There are a lot of changes over time, as the world evolves. Some of these changes however are trends within long-term cycles. For example, over the past 40 years, companies in general are not as focused on distributing dividends to shareholders as they once were. I do focus on the companies that still pay and grow dividends however, but I do recognize that things may change in the future. There is a need to be flexible in my approach. In the current version of my approach, I do look for companies that can grow earnings and dividends for decades down the road, while also compounding future net worths. A long streak of consecutive annual dividend increases is the signal I used to identify such companies for research. However, if companies stopped raising dividends, and focused on buybacks instead, I may end up with a much smaller sample size of an investing population from which to source ideas for my portfolio.

For example, in the past 40 years, companies are more prone to pay buybacks than dividends. These days, companies are paying more in buybacks than dividends. 

When share prices are rising, shareholders usually do not care about dividends, as their portion of total returns seems insignificant. This has increasingly been the case in the current bull market. If a stock keeps rising by 15%/year, a shareholder is not going to be impressed by a 2% or a 3% dividend yield. The same thing occurred in the 1990s.

Of course, when share prices refuse to go up, only then do shareholders realize the value of dividends. This happened between 1966 – 1982 

During those secular bear markets, you see growth companies initiate dividends. This was the case with Wal-Mart stores in 1974, which initiated a dividend after a monstrous 50% decline in the stock in a brutal bear market. This was also the case for Microsoft in 2003, which initiated a dividend after the implosion of the dot-com bubble.

I find dividends to be a decent indicator of valuation, albeit not perfect of course. Lack of dividends definitely makes it harder to evaluate things on my end. Particularly if we are analyzing the broader US markets, where companies have had the proclivity to raise dividends annually for years.

Low yields have historically marked stock market tops. For example, in the 1980s, the Japanese index Nikkei 225 rose from 8,000 to 39,000 points in the span of a decade. Dividend yields, which were historically low for Japanese stocks, were down to 0.50% by 1989. A dividend investor that was close to retirement could have just expected to live off the dividend, but at 0.50% that’s not much. Investors who viewed capital gains as free money however, and expected to live off future gains would have run out of money by the late 1990s as Nikkei fell by 50% - 75%. This is just a reminder that valuations can get out of hand, people would lose their minds in a speculative fervor, but when the clock strikes at midnight the party may end. 

At present times, we have the so called FANG companies like Facebook/Metaverse, Amazon, Netflix and Google growing share prices, but not really paying dividends. At this pace, only Metaverse and Google are doing some notable share buybacks, but they are not really paying a dividend. Google has always looked like a company that can grow and support dividends, and it is a company I understand and have been really close to buying. However, I never did, mostly to my own detriment.

I have used Google for about 20 years now, so I definitely failed my inner Peter Lynch. I was also one of the first group of users for Facebook since 2005, so I failed Peter Lynch there as well. And I have used Amazon since 2004/2005 as well. I have even generated revenue from Amazon and Google. In fact, one of my mistakes has been that I never invested in them. If I had invested that modest revenues into the stocks, I would have made a pretty dime. I did recognize and invest in other companies within the dividend growth investing universe that did well, so for the time being, the dividend growth investing universe did its work. 

 I have been spoiled in the past 10 - 15 years, because I had the ability to buy quality dividend aristocrats, dividend champions and dividend achievers t attractive valuations, and watch them continue growing earnings and dividends for the most part ( and share prices too). But the future may be different, so I need to understand that if things change, I should be able to recognize it. So while I am fine with the fact that I will miss out on some great companies in my lifetime, I also need to think about risks to my strategy too. If promising companies I understand are out there, but they do not pay and grow dividends, I may be at a disadvantage.

I am pretty confident however, that at some point all of these companies (FAANG types) would initiate a dividend to shareholders. Perhaps that would happen during the next big and pro-longer bear market, just like was the case for Wal-Mart or Microsoft. Of course, I may have to wait for years, before this happens, missing out on potential gains. There are always going to be trade-offs, no matter what I do of course. If I had decided to buy Oracle or Cisco in 1999 for example, it would have been a poor choice. Buying Cisco or Oracle when it initiated a dividend would have been a better choice.

One way that I have somewhat reconciled with the fact that I will miss out on companies is that I own them indirectly through my 401 (k) plan at work. It is basically invested in S&P 500 and an international fund at an 80/20 split. Google, Amazon, Facebook and even Tesla are some of the largest holdings. In a way, this fund portfolio is a good hedge for the companies I will end up missing out on.

But still, it is a good reminder that things can change and evolve over time. The future is never written in stone, and anything could happen really. This helps us stay humble, and open the where things are today, not where we thing they should be.

We need to be cognizant for the potential for change. A decade ago, I believed that companies that do not pay dividends are doing so, because they cannot afford to pay dividends. The success of companies like Google have definitely shown that this is not always the case.

This is why investing is part art, part science. I always keep asking myself if I am being prudent or stubborn.

What is the point of this article?

Notably, trying wrap a few ideas together. Basically we also want to stick to long-term trends, like rising dividends per share, and stick to them for as long as they are present, without second guessing too much.  But, we also need to recognize that things change, so we need to be adaptable. Ultimately, the best idea is to try and improve and focus on quality companies that can grow earnings and cash flows over time and can afford to grow dividends.  That being said, you will miss some companies, as its part of the game. Others that seem like can’t miss investments that you invest will disappoint. Having a fail-safe mechanism, like a 401 (k) retirement fund at work is a good hedge.

Of course in a perfect world, we would have companies like Google, Facebook, Amazon initiating  dividend soon. Microsoft and Apple already did that, so this shouldn't be a foreign concept. But I am actively monitoring the situation.

A dividend increase shows a commitment to enhancing total shareholder returns through both strong business performance and returning cash to shareholders.

It is a testament to a diligent capital allocation and management framework, and it reinforces our commitment to deliver value for our shareholders. The increase in the dividend highlights the board of directors confidence in the company’s overall financial condition and its increasing earnings capacity. It usually shows that they are allocating capital with the best interest of shareholders in mind.

During the past week, there were several companies with established track records that rewarded their shareholders with a dividend increase. The companies include:

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

Companies listed in this post include: AES, AMGN, AXS, ECL, EGP, EMN, GGG, MA, MKC, MORN, MRK, NUE, RGCO, SLG, UHT, WEC

I recently saw an interesting chart, that shows the evolution of ownership of US stocks over the past 55 years.

This study analyzed the ownership of US corporate equity and analyzed continuing trends. It found that foreigners now hold about 40 percent of total US equity, retirement accounts about 30 percent, and taxable accounts about 25 percent. Non-profits and US Government held about 5% - 6% of US Stock.

Source:

This chart shows that between 1965 and 2019, the percentage of US stocks held in taxable accounts has decreased significantly. It fell from almost 80% in 1965 to a little less than 25% in 2019. This has big repercussions for tax revenues, because it means that a much lower amount of US stocks are subject to taxes on capital gains and dividends than ever before. This means that raising taxes on capital gains or dividends will not impact shareholder decisions, as it would have 55 years ago.

In addition, this doesn’t show the percentage of taxable accounts, which would not be subject to taxes on qualified dividends and capital gains. For example, a married couple in the US, whose only source of income includes qualified dividends will not pay any taxes on the Federal level if they earn $105,000 in dividend income this year.

The amount owned in retirement accounts such as defined benefit pension plans, defined contribution 401 (k) plans and Individual Retirement Accounts (IRAs) has been steadily increasing in the past 55 years. The IRA was invented in 1974, and has definitely helped millions of Americans save for retirement, and defer a ton of taxes along the way. The defined contribution plans like 401 (k) have been around since 1978, and started gaining momentum in the 1980s. A large portion of US employees have accumulated trillions in assets in those retirement plans.

The taxation of 401 (k) distributions and IRA distributions varies. Typically, withdrawals are taxed at ordinary income tax rates. But it depends. That’s because since 1998, employees have the ability to invest through a Roth IRA or Roth 401 (k) plan, which allows for tax free growth and tax free withdrawals at retirement.

Defined benefit plans, which pay pensions to retired workers owned just 8% of US stock in 2019. That’s downs from 22% in 1985 and 16% in 2005. The benefit plans themselves do not pay taxes on dividends or capital gains. However, when they distribute pensions to retired workers, the employees pay tax on that income at ordinary income tax rates. If the employees are able to take the money in a lump sum instead, and roll it into an IRA however, they may defer payment for quite some time.

The amount of US stock owned by Foreigners has increased from 4% in 1986 to 40% in 2019. 

Foreigners own US corporate equity two ways: (i) foreign direct investment (“FDI”), which is

voting stock of 10 percent or more or (ii) portfolio stock for less than 10 percent of voting stock.

For example, Siemens AG, a German multinational, might wholly own Siemens USA, a “direct” investment. Or the Norwegian sovereign wealth fund might own Apple stock as a portfolio investment.

Based on my understanding, foreign investors do not pay taxes on capital gains to the IRS, provided they are not a resident of the United States. They may own taxes on capital gains to their local jurisdiction. However, most foreign investors do have tax withholdings on dividend income that is sourced from a US company. Each individual country has a different treaty with the United States on taxation of dividends, For example, Canadian residents pay a 15% withholding tax on US dividends in their taxable accounts. However, if they held US stocks in retirement accounts, they would not owe taxes.

I am unsure how certain large foreign holders of US stocks, like the Norway Sovereign Wealth Fund or the Swiss National Bank are taxed on dividend income or capital gains. I would assume they are going to be taxed like a US pension fund or a US not for profit. 

The downside of the 40% ownership of US equity by foreigners is that we do not know what percentage is taxable on their side. We do know that while foreign investors in US stocks may not pay capital gains taxes to the US Government, they do have a very low threshold for paying an estate tax. If a foreign investor in US stocks has more than $60,000 at the time of their death, they are subject to a 40% tax.

The purpose of this discussion is to reiterate how everyone’s personal financial situation is very different. We may have rates of qualified dividends and capital gains set by congress at a certain level like 15% for example or 23.80%. However, that doesn’t mean that everyone pays that rate. In fact, it shows that only a small percentage of shareholders are going to be paying that much taxes on dividends or capital gains. That’s because only 25% of US stock is held in taxable accounts.

We often hear that it is better for shareholders if companies do share buybacks over dividends, because remaining shareholders do not pay taxes in this situation. The problem is that not everyone pays taxes on dividends. As we mentioned above, about 35% of stock is held in retirement accounts and non profits, which do not pay tax on dividends. Only 25% of stock is held by taxable accounts, and even for those we don’t know the percentage that have to pay taxes on dividends or capital gains. Everyone’s tax situation is different, which is why it is hard to determine the best decision that would work for everyone (hint: that doesn’t exist).

There were several companies over the past week which announced their intent to raise dividends to shareholders. It is always great to see companies that are able to extend their long streaks of annual dividend increases. I find dividend increases to be a good indicator of how company executives feel about the near-term business environment. It also shows their confidence in the company’s growth prospects. 

Factors that boards of directors consider when setting the dividend include future earnings expectations, payout ratio and dividend yield relative to those at peer companies, as well as returns available on other income-oriented investments.

This is why I find it very helpful to review dividend increases every week for established dividend growth companies. To be included in this list, a company should have managed to reward shareholders with a dividend hike for at least ten years in a row.

I focused on companies that can afford to grow dividends for at least a decade. I figured that a company which has managed to boost dividends during a recession and an expansion, or even longer, is better suited for further research by a long-term dividend growth investor like me.

In my previews, I look at the most recent dividend increase, and compare it to the ten year average. While there are some year-over-year fluctuations in dividend growth, it is helpful to see if dividend growth is decelerating.

In addition, it is helpful to review trends in earnings and dividends, alongside dividend payout ratios. This is another indicator of dividend safety.

Last, but not least, I also try to review the valuation behind every company. I prefer to buy future dividend income at attractive valuations; overpaying for future dividend income is not a good business decision.

- Twelve Companies Rewarding Shareholders With Regular Dividend Increases

- Five Dividend Growth Stocks Delivering Raises To Shareholders

- Six Dividend Growth Stocks Rewarding Shareholders With Raises

- Fourteen Cash Machines Hiking Dividends Last Week

I review the list of dividend increases every week, as part of my review process. I focus my attention on companies that raised dividends in the current week, and have at least a ten-year track record of annual dividend increases.

Only a company with a strong cash flow generating business can afford to grow dividends for a long period of time. Therefore, a business growing dividends for at least a decade is worth looking at for further research.

There were nine companies that fit the criteria. You can view the five companies in the table below:

Company	Symbol	New Dividend	Old Dividend	Raise	Years Annual Dividend Increases	Ten Year Annualized Dividend Growth	Forward P/E	Dividend Yield
Aflac	AFL	0.4	0.33	21.21%	39	6.99%	9.47	2.86%
Agilent	A	0.21	0.194	8.25%	11	11.02%	37.6	0.52%	*
Brady	BRC	0.225	0.22	2.27%	37	2.15%	15.98	1.80%
Brown-Forman	BF.B	0.1885	0.1795	5.01%	38	7.72%	42.58	0.99%
City Holding	CHCO	0.6	0.58	3.45%	10	5.30%	14.81	2.88%
Griffon	GFF	0.09	0.08	12.50%	11	9.86%	15.24	1.41%	*
HP	HPQ	0.25	0.19	31.58%	12	16.67%	8.42	3.18%
Matthews	MATW	0.22	0.21	4.76%	27	11.29%	12.68	2.28%
Motorola Solutions	MSI	0.79	0.71	11.27%	12	11.61%	28.44	1.23%	*
Nike	NKE	0.305	0.275	10.91%	20	13.35%	48.62	71.00%
Realty Income	O	0.246	0.236	4.24%	27	4.93%	20.58	4.16%
Royal Gold	RGLD	0.35	0.3	16.67%	21	12.02%	25.43	1.31%
United Bankshares	UBSI	0.36	0.35	2.86%	48	1.55%	13.34	3.66%
Unity Bancorp	UNTY	0.1	0.09	11.11%	10	17.08%	8.14	1.48%	*

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

Relevant Articles:

Relevant Articles:

- Ten Dividend Growth Stocks Rewarding Owners With A Raise

- Twelve Companies Rewarding Shareholders With Regular Dividend Increases

- Five Dividend Growth Stocks Delivering Raises To Shareholders

- Six Dividend Growth Stocks Rewarding Shareholders With Raises

- Five Dividend Growth Stocks In the News