Investors have been attracted to companies that have dividends that are steadily increasing for years, giving special attention to companies that are mega cap members of the S&P 500. Companies like Proctor and Gamble, (PG) Pepsico, (PEP) AT&T, (T) 3M, (MMM) Consolidated Edison, (ED) Exxon Mobil, (XOM) and Wal-mart (WMT) are making products we use every day, so they're always on the top of our minds.
Another reason why investors love those big names so much is they've managed to increase dividends for 25 consecutive years, an accomplishment worthy of praise. These companies have become world leaders in their fields, boasting some of the best products and management on the planet. You don't get to increase dividends for 25 years in a row if you're not doing a few things right.
While I don't want to paint all mega cap stocks with the same brush, it's unlikely a gigantic company can grow fast enough to give investors the alpha we're all looking for. Sheer size makes growing a company with $100B in revenue much more difficult than a company with $500M in sales. Additionally, large companies tend to be more inefficient, layered with more levels of bureaucracy. What's an investor to do?
How about looking at some smaller stocks? Here's a list of 6 that have grown their dividends for a decade, yet still sport a market cap of under $2B.
1. Avista Corp. (AVA)
First up is Avista Corp., a power distribution company which operates in Washington State, Idaho, and parts of eastern Oregon. They've grown their dividend from 12 cents per quarter in 2003 to 30.5 cents today, a growth rate of 9.8% annually. Additionally, the company just acquired an Alaska based utility for $170M, which should add to earnings immediately after closing in 2014. At a market cap of just $1.67B, Avista could end up being a target for one of the bigger utilities. The company has a current yield of 4.4% and trades at a P/E of 18.
2. Universal Corp. (UVV)
Next is Universal Corp., the world's leading leaf tobacco merchant and processor. They've grown their dividend for 43 consecutive years, going from 2.3 cents per share then to 50 cents per share now, representing a 7.4% CAGR over that time frame. While tobacco is a slowing business, Universal is quite profitable, enjoying operating margins close to 10%. The dividend payout ratio last year was 41.5%, giving this company plenty of room for future dividend increases. The current yield is 3.7% and the company trades at a P/E of just over 9.
3. BancFirst Corp. (BANF)
Third on the list is BancFirst Corp., a regional bank based out of Oklahoma City. BancFirst has a market cap of $840M, and has grown the dividend for 20 consecutive years, going from 2.5 cents per share in 1993 to 31 cents per now, a CAGR of 13.4%. BancFirst survived the financial crisis without even a hiccup, and they show restraint by keeping over $2B worth of cash on their balance sheet consistently. The current yield is 2.3%, and it trades at around a 16 P/E. This stock is fairly illiquid, only trading an average of 20k shares per day, something to keep in mind.
4. Mine Safety Appliances (MSA)
Mine Safety Appliances develops and manufactures safety equipment for workers in the construction, oil and gas, and mining industries. They've been publicly traded since 1978 and have a market cap of $1.85B. Mine Safety has been increasing the dividend annually since 2000, growing it from 4 cents per quarter to 30 cents a quarter today, a CAGR of 16.7%. Mine Safety has a solid balance sheet too, with a debt to equity ratio just a hair above 0.5. They have a current yield of 2.4%, a P/E ratio of 22.8, and last year's payout ratio was 59.7%
5. SJW Corp (SJW)
SJW Corp is a water distribution company, operating in Texas and San Jose, California. They also own undeveloped land in California and Tennessee. They've grown the dividend since 2001, going from 10.25 cents per quarter to 18.25 cents today, a CAGR of 5.2%. They have a current yield of 2.59%, a market cap of $568M and a P/E ratio of 22.
6. Weyco Group (WEYS)
Weyco Group designs and distributes footwear primarily for men, but also women and children under a portfolio of brand names. They've grown the dividend since 1994, starting at 2.22 cents per share up to today's 18 cents per share, a CAGR of 11.6%. They have a market cap of just $311M. They have a current yield of 2.5% and a P/E ratio of 17.
While the list of small cap stocks with at least a decade of dividend growth is smaller than their mega cap brethren, these 6 stocks could be the next decade's S&P 500 dividend aristocrats. They're all solid companies that are worth more analysis.