This is the first article in a two-part series analyzing dividend champions. These companies have solid dividend-payment track records. Financial statements can be fudged, whereas dividend payments cannot.
A steady and growing dividend is a sure sign of a stable, financially sound company and offers investors some cushion against market turmoil. Let’s dig in and look at the first set of companies that can reward you with income:
3M Company (MMM) has been raising its dividend for 53 consecutive years. Its annual dividend is $2.20 or a yield of 2.8% with the stock price at $79.30. The payout ratio is 37.3%. DRIP fees do not apply. Management hiked the quarterly payout by 4.8% to $0.55. The dividend growth rate for the last ten years is 6.1%.
The stock trades at 13.5 times its trailing twelve months (ttm) earnings and is down about 8% for the year. It trades at a discount to Johnson & Johnson (JNJ) at 15.6 (ttm) and 3.56% dividend yield.
Third quarter sales rose 9.6% helped by growth in five of its six operating segments. Most of the growth was attributed to acquisitions and foreign exchange gains. The company’s operations in all major geographic areas recorded healthy growth with Latin America/Canada leading the way with 14% rise in sales.
For the full year, management has lowered its outlook on slowing demand. Organic sales are slated to grow between 3 to 4%, much lower than the previous forecast of 6 to 7.5%. The company’s fortunes are tied to global economic conditions. Weak demand from developed nations should be offset by strong demand from developing economies.
This industrial giant will weather the storm through its broad diversified product offerings, market leading positions and solid financial position. The current valuation is a good entry point.
Abbott Laboratories' (ABT) dividend has been growing for 39 consecutive years. The annual payout is $1.92, or 3.6% yield with the stock price at $53.33. The payout ratio is 66.2% and DRIP fees are not payable. The quarterly dividend has been hiked by 9% to $0.48. The dividend growth rate for the last ten years is 8.8%.
The stock is up about 14% for the year and trades at 18.4 times its trailing twelve month earnings (ttm), a significant discount when compared to Merck (MRK) at 25.2 (ttm) and 4.4% yield.
On the earnings front, Abbott reported strong third quarter results. Its emerging market segment was the star performer, recording a 21% rise in sales. Management also confirmed its full year earnings guidance in the double digit range.
The latest news around this company is the forthcoming split into two different business entities. The first company will sell Abbott’s branded drugs, while the second will sell medical products, generic offerings and baby formula, among other products. Analysts and investors are generally satisfied with this arrangement.
The coming split should benefit shareholders handsomely, as it may result in higher valuations for each company. Also factor in a fairly strong product pipeline and overseas market expansion, this stock is a worthwhile holding.
ABM Industries (ABM) boasts a 44 year track record of dividend growth. The annual payout is $0.56 or 2.7% yield with the stock price at $20.77. The payout ratio 41.8% and DRIP fees are not applicable. The quarterly dividend has been increased by 3.7% to $0.14. The dividend has been growing at 5.7% over the last ten years.
The stock is about 23% down for the year and is trading at 15.47 times its trailing twelve month earnings. Third quarter revenues jumped almost 24% due mostly to acquisitions made last year, and net income was up 33%.
Management has lowered its full year guidance due to the soft domestic economy and lower contributions from Federal contracts, amongst other things. Investors should give this stock a miss for the time being until the company can demonstrate better resiliency against the soft economy.
AFLAC Inc. (AFL) has a 29 year record of consecutive dividend increases. The latest quarter payout has been hiked by 10% to $0.33, and the payout ratio is 33.5%. The annual dividend is $1.32, yield of 2.9% with stock price at $46.43. There are no DRIP fees.
The stock had a good run since mid August, climbing about 25%, though it is down about 20% for the year and trades at 11.8 times its trailing twelve months (ttm) earnings.
The stronger yen/dollar exchange rate has been a boon for AFLAC’s results. Third quarter revenues were up 11% with diluted net earnings per share rising about 9% to $1.59. Growth in sales from its Japanese unit exceeded management’s expectations, while the domestic market posted solid growth as well. This is reassuring considering the weak state of the two countries’ economies.
Excluding the impact of the yen/dollar exchange rate, management expects an 8% growth operating earnings per share for the full year. The current valuation is good entry point for investors taking into account AFLAC’s strong capital ratio and cash position, positive growth on the domestic front and further shareholder rewards in the form of stock buybacks.
Air Products & Chemicals (APD) has a 29 year record of consecutive dividend increases. The payout ratio is 41.2%. The annual dividend is $2.32, yield of 2.7% with the stock price at $87.53. Management has been kind to shareholders, hiking the quarterly dividend by 18.4% to $0.58. DRIP fees do apply.
The stock is down about 3% for the year and trades at 15.5 times its trailing twelve month (ttm) earnings, a huge discount when compared to Airgas (ARG) which trades at 21.8 times (ttm) and a 1.8% dividend yield.
Fiscal fourth quarter results were solid. Sales were up 11% to $2.6 billion with earnings per share up by 12%. Fiscal 2011 results were in solid shape with sales of $10 billion, up 12% over fiscal 2010 with earnings per share of $5.73, up 14% over the same period.
Management is cautious with its fiscal 2012 guidance, giving a wide range of 3 to 10% in earnings growth. Sluggish global growth can temper earnings. The company has a large number of signed order backlogs, investors should stay on the sidelines until first quarter fiscal 2012 results are out, to get a better picture.