Seeking Alpha
Long only, value, long-term horizon, dividend investing
Profile| Send Message|
( followers)  

In this article, I give the results of a screen aimed at identifying companies that may be at the start of a period of strong dividend growth. The philosophy behind this screen is to look for companies that have increased their dividend at a higher rate than the previous year, for the last two dividend increases. When management delivers a dividend increase greater than the previous increase, we can hope that it is a signal that business this year is stronger than the previous year. Thus, this screen is aimed at identifying companies whose managements are sending an explicit signal that business has been strong and improving over the past years.

Before describing the screen, I want to be explicit about how I view screens and their purpose. I use screens as starting points for research ideas, and the results of this screen do not constitute a recommendation to invest. Typically, when constructing a screen, I try to focus on different metrics than other commonly available metrics like P/E or P/B, as I'm looking for different ways to slice up the investment universe than are often used.

Screen Criteria

In this screen, I use the following criteria:

  1. A company must have grown its dividend each year for the past 7 years.
  2. The percentage increase in the dividend from 2012 to 2011 must be greater than or equal to 9%, from 2011 to 2010 greater than or equal to 8%, and from 2010 to 2009 greater than or equal to 7%.
  3. The percentage increase in the dividend from 2012 to 2011 must be greater than the percentage increase from 2011 to 2010. The percentage increase in the dividend from 2011 to 2010 must be greater than the percentage increase from 2010 to 2009.
  4. The cash reported on the company's balance sheet in 2012 must be greater than the cash reported on the company's balance sheet in 2011.
  5. The company's debt/equity ratio must be lower than .65.
  6. The TTM dividend yield must be greater than 1%.

To identify companies that passed the first 3 components of the screen, I used the May 31 Dividend Champions/Challengers/Contenders spreadsheet maintained by David Fish. To further filter by the last three components, I used Morningstar.

Eleven companies passed this screen: Prosperity Bancshares (NYSE:PB), CARBO Ceramics (NYSE:CRR), Albemarle Corp. (NYSE:ALB), Bank of the Ozarks Inc. (NASDAQ:OZRK), Nu Skin Enterprises Inc. (NYSE:NUS), W.W. Grainger Inc. (NYSE:GWW), Qualcomm Inc. (NASDAQ:QCOM), National Bankshares (NASDAQ:NKSH), Royal Gold Inc. (NASDAQ:RGLD), Analog Devices Inc. (NASDAQ:ADI), and Texas Instruments (NASDAQ:TXN).

Prosperity Bancshares

Prosperity Bancshares is a regional bank located in Texas and Oklahoma. It has increased its dividend every year for 14 years and currently yields 1.73%. Its earnings per share, dividends per share, and payout ratio over time are:

PB EPS Diluted TTM Chart

PB EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

CARBO Ceramics

CARBO Ceramics is in the Oil & Gas Equipment and Services Industry. It is the world's largest manufacturer of ceramic proppant, which is used in hydraulic fracturing. It has increased its dividend every year for 12 years and currently yields 1.6%. Its earnings per share, dividends per share, and payout ratio over time are:

CRR EPS Diluted TTM Chart

CRR EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Albemarle Corp.

Albemarle Corp. is a developer, manufacturer, and marketer of chemicals and services. The company has divisions in Polymer Solutions, Catalysts, and Fine Chemistry. It has increased its dividend every year for 19 years and currently yields 1.52%. Its earnings per share, dividends per share, and payout ratio over time are:

ALB EPS Diluted TTM Chart

ALB EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Bank of the Ozarks Inc.

Bank of the Ozarks is a regional bank with locations in Arkansas, Texas, Alabama, Georgia, North and South Carolina, and Florida. It has increased its dividend every year for 15 years and currently yields 1.55%. Its earnings per share, dividends per share, and payout ratio over time are:

OZRK EPS Diluted TTM Chart

OZRK EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Nu Skin Enterprises Inc.

Nu Skin Enterprises is a global company that develops and distributes premium personal care products and nutritional supplements. It has increased its dividend every year for 13 years and currently yields 1.95%. Its earnings per share, dividends per share, and payout ratio over time are:

NUS EPS Diluted TTM Chart

NUS EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

W.W. Grainger Inc.

W.W. Grainger distributes maintenance, repair, and operating supplies to a broad ranges of businesses and institutions in North America. It has increased its dividend every year for 42 years and currently yields 1.47%. Its earnings per share, dividends per share, and payout ratio over time are:

GWW EPS Diluted TTM Chart

GWW EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Qualcomm Inc.

Qualcomm is the innovator of CDMA (code division multiple access) technology, which is used in a number of cell phones. It supplies chips for cell phones and also generates revenue from royalties on intellectual property. It has increased its dividend every year for 11 years and currently yields 2.26%. Its earnings per share, dividends per share, and payout ratio over time are:

QCOM EPS Diluted TTM Chart

QCOM EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

National Bankshares Inc.

National Bankshares is a regional bank with offices in Virginia. It has increased its dividend every year for 14 years and currently yields 3.15%. Its earnings per share, dividends per share, and payout ratio over time are:

NKSH EPS Diluted TTM Chart

NKSH EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Royal Gold Inc.

Royal Gold is engaged in the acquisition and management of precious medal royalties. It has increased its dividend every year for 12 years and currently yields 1.49%. Its earnings per share, dividends per share, and payout ratio over time are:

RGLD EPS Diluted TTM Chart

RGLD EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Analog Devices Inc.

Analog Devices is a leading analog chipmaker involved in several markets. It has increased its dividend every year for 11 years and currently yields 3.02%. Its earnings per share, dividends per share, and payout ratio over time are:

ADI EPS Diluted TTM Chart

ADI EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Texas Instruments

Texas Instruments is the world's largest analog chipmaker and supplies embedded chips for a number of applications. It has increased its dividend every year for 10 years and currently yields 3.16%. Its earnings per share, dividends per share, and payout ratio over time are:

TXN EPS Diluted TTM Chart

TXN EPS Diluted TTM data by YCharts

The percent by which the dividend has increased for the past seven years is:

(click to enlarge)

Source: 11 Stocks Demonstrating Acceleration In Dividend Growth