Dividend Increases For The Month Of October

Includes: AEP, AFL, HII, HON
by: Dividends & Income Daily

Stop the presses. Somebody else figured out my secret.

Greg Thomas of Thomas Partners recently told Barron's, "There is no trade-off between income and growth."

(Luckily, we can enjoy both with a single investment in dividend growth stocks.)

Lest you think he's simply blowing smoke to make headlines, think again. A whopping 75% of the $3 billion in assets that Mr. Thomas manages for his clients is invested in companies that consistently up their payouts.

And his long-term track record proves that it works.

Over the last 10 years, he's delivered a total return of 8.7% per year (after fees). That compares favorably with a return of 7.3% per year for the S&P 500 Index.

So don't just take it from me. Dividend growth stocks are where it's at.

That's why, once a month, we look back on recent dividend increases to see if the hikes justify making a spot in our portfolios for the companies.

Without further ado, let's get to it…

Growing Again At AEP

Everybody knows electric utilities represent a solid choice for steady income. After all, no matter how tight money gets, people tend to do everything it takes to keep the power on.

Such reliability has helped Columbus, Ohio-based, American Electric Power (NYSE:AEP) pay dividends every quarter for over 100 years.

Recently, the company hiked its quarterly payout by 2% to $0.50 per share. That marks the second increase this year, too. At current prices, the stock now yields an attractive 4.2%.

But don't rush out to scoop up shares just yet.

Although the latest increases are encouraging, a quick review of the company's payout history reveals a spotty track record of increases. In fact, last year, management stiffed investors by not raising the dividend at all.

Plus, the company's dividend payout ratio rests near the high end of our desired range at 76%. That means there's not exactly a ton of room for future increases.

If consistent dividend growth truly matters more than current yield - and it should - I'd pass on American and buy Honeywell International (NYSE:HON) instead.

Here's why…

Stronger Dividend Growth Always Wins Out

Last month, Honeywell also hiked its quarterly dividend. Instead of a 2% raise like American, though, it handed out a 10% increase.

That's not all. It's boasts a longer history of payouts and a more generous track record of increases.

While American has paid a quarterly dividend since 1910, Honeywell has been paying one since 1887.

As far as dividend growth, Honeywell has hiked its dividend nine times in the last decade - by an average of 10.2% each time. In comparison, American has only increased its dividend six times - by an average of 4.8%.

Honeywell is in a much better position to keep dishing out the increases, too, as it sports a dividend payout ratio of only 40%.

Add it all up, and even though Honeywell's current yield of 2.1% is less, it holds the most long-term promise for growth and income.

Trick or Treat?

For over a century, Huntington Ingalls Industries, Inc. (NYSE:HII) has been designing, building and servicing nuclear and non-nuclear ships for the U.S. Navy and Coast Guard.

A few days ago, the company doubled its quarterly dividend from $0.10 to $0.20 per share.

It's not every day that such a dividend boost is announced. Heck, I can't remember a single day this year when it happened.

But that's not all. Management also doubled the company's stock repurchase program from $150 million to $300 million.

President and CEO Mike Petters said, "These increases demonstrate continued confidence in our 2015 financial target of (9%-plus) operating margins, as well as our commitment to a balanced capital allocation strategy."

So what's not to like here, right? Sadly, that would be the current yield.

Even after the boost, the stock yields only 1.1%. But don't get bummed out.

Huntington started paying a dividend just last year. If the first increase is any indication, future dividend increases could make the yield competitive in a hurry.

Its dividend payout ratio checks in at less than 20%, meaning the company can afford to keep handing out generous dividend increases.

Add it all up, and Huntington is a contender. Let's put it on our watch list. If the dividend increases continue, it'll be time to add it to our portfolios.

AFLAC Delivers

In October, I predicted that it wouldn't be long before executives at supplemental health and life insurer, AFLAC (NYSE:AFL), decided to put a little extra jingle in shareholders' pockets.

Sure enough, the company just announced a quarterly dividend hike of almost 6% to $0.37 per share.

The increase marks the 31st year in a row that AFLAC has raised its dividend. We can pretty much bank on another hike next year… and the year after that and the year after that, too.

At current prices, the stock sports a 2.3% yield, which isn't overly compelling. But it's right in line with 10-year U.S. Treasury bonds.

As I mentioned last time, though, the stock offers something Treasury bonds don't - significant capital appreciation potential.

While some dividend payers now trade at frothy valuations, shares of AFLAC change hands at just nine times earnings. That works out to a 47% discount to the average stock in the S&P 500 Index and a 60% discount to the average insurance company.

Combine the modest (but growing) yield with the potential for double-digit price appreciation, and you see that AFLAC, unlike Huntington, is one dividend grower worthy of our attention.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Dividends & Income Daily is a team of financial researchers. This article was written by Louis Basenese, one of our financial researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.