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With dividend paying stocks performing relatively well in 2011, it’s not as easy as it once was to find those companies that not only have a solid dividend yield and strong dividend growth, but also have low debt, low payout ratios, and a history of consistent dividend growth. But there are still great companies out there that will reward you with growing dividends over the long-haul. Let’s take a look at two companies with low debt, a relatively high dividend yield, and a very strong five-year dividend growth rate of above 20%.

AFLAC Inc. (NYSE:AFL)

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also provides loss-of-income products, such as life and short-term disability plans; and products designed to protect individuals from depletion of assets, which comprise hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/critical care, and hospital intensive care plans in the United States.

*Company profile information taken from Yahoo Finance

Dividend

Yield

5 Year

Annualized Div

Growth Rate

1 Year Div

Growth Rate

Payout

Ratio

Debt/Equity

AFL

3.1%

21.0%

10.0%

30.0%

33.0%

Although the five-year dividend growth rate has been stellar at 21% per year, the rate of growth did finally come down a bit this past year to 10%. However, AFLAC has a lot going for it when it comes to its dividend paying ability and culture of paying strong dividends over time. It has never cut the dividend since going public in 1984. In fact, it has never failed to increase the dividend on a year-over-year basis since going public. AFL also has a relatively low payout ratio, which means there is money left over for reinvestment in the company or to continue raising dividends further. Also, the debt to equity of this company is a very safe 30%. I always like to look at total return scenarios for companies such as AFL by plugging in some numbers into my calculator called Total Returns- Dividends vs. Price Appreciation.

Annual Return Over 10 Years

Dividend

Growth

Rate

Annual % Change

in Stock Price

5%

9%

13%

17%

21%

0%

3.8%

4.5%

5.3%

6.2%

7..3%

2%

5.3%

5.9%

6.6%

7.4%

8.2%

4%

6.8%

7.4%

8.0%

8.7%

9.6%

6%

8.4%

8.9%

9.5%

10.1%

10.9%

The outputs in the middle show the annual total returns for a given annual dividend growth rate and change in stock price. I like to be conservative with my assumptions when projecting my own dividends. Using a 9% growth rate over the next 10 years AFL would still return 4.5% per year even if the stock price doesn’t budge.

Flowers Foods (NYSE:FLO)

Flowers Foods, Inc. produces and markets bakery products in the United States. It operates in two segments, Direct-Store-Delivery (DSD) and Warehouse Delivery. The DSD segment produces and markets fresh and frozen packaged bread and rolls, tortillas, sandwich rounds, thin sliced bagels, and whole grain white bread under the brand names of Flowers Foods, Nature’s Own, Whitewheat, Cobblestone Mill, Blue Bird, ButterKrust, Dandee, Mary Jane, Evangeline Maid, Ideal, Captain John Derst, Country Hearth, and Nature’s Grain.

*Company profile information taken from Yahoo Finance

Dividend

Yield

5 Year

Annualized Div Growth Rate

1 Year Div

Growth Rate

Payout

Ratio

Debt/Equity

FLO

3.2%

24.9%

14.8%

53.0%

42.8%

FLO has been a solid dividend payer over the past five years. However, the one year growth rate of dividends has come down a bit and the payout ratio is higher than I normally like it. Also, unlike AFLAC, Flowers Foods has cut its dividend twice in the past. But with relatively low debt this company looks primed to continue its consistent growth of its dividends. Let’s look at some possible scenarios below.

Annual Return Over 10 Years

Dividend

Growth

Rate

Annual % Change

in Stock Price

6%

10%

14%

18%

22%

0%

4.1%

4.8%

5.5%

6.2%

7.8%

2%

5.5%

6.2%

5.9%

7.0%

8.8%

4%

7.0%

7.6%

8.3%

9.1%

10.0%

6%

8.6%

9.1%

9.7%

10.4%

11.2%

It’s important to understand how the dividend yield and growth rate interact to produce compounded returns over time. Running scenarios such as the ones I’ve shown above give users a feel for what they can expect over longer holding periods. It also shows the power of solid dividend paying stocks over time and why most people should have them in their portfolio.

Source: Dividend Growth Above 20% And Much More: AFLAC And Flowers Foods