3 Companies With A 5-Year Dividend Growth Rate Of At Least 13%

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Includes: HAS, NKE, VFC
by: The Dividend Bro
Summary

Companies that are dominant in their sector of the economy can make more and more money.

They can then use those profits to pay larger dividends.

Hasbro, Nike and VF Corp. are companies with large market share that offer investors excellent dividend growth.

As a dividend growth investor, I am always on the lookout for companies with good dividend growth. My wife and I have a goal to live off the dividends once we hit retirement. I also want to make sure we pay a fair price for the stocks. My purchasing criteria is fairly straightforward and as follows:

For core holdings, we want companies that:

  • Have at least 10 consecutive years of dividend growth
  • Are considered by S&P Capital/Morningstar to be no more than 5% overvalued
  • Are considered by F.A.S.T. Graphs to have a current price to earnings ratio that is no more than 5% overvalued when compared to the five-year average price to earnings ratio
  • Have a dividend yield above 2.0%. Dominate their sector of the economy

For supporting holdings, we want companies that:

  • Have 5 years of dividend growth or 10 years of paying uninterrupted dividends
  • Are considered by S&P Capital/Morningstar to be at least fairly valued
  • Are considered by F.A.S.T. Graphs to have a current price to earnings ratio no more than 5% overvalued when compared to the five-year average price to earnings ratio
  • Have a dividend yield above 1.0%

For speculative holdings, we want companies that:

  • Have recently initiated a dividend, or have an average dividend growth rate of at least 10% or higher for the life of the dividend
  • Are considered by S&P Capital/Morningstar to be at least 5% undervalued

Hasbro, Inc (NASDAQ:HAS)

Current Yield

# Years div growth

5-Year Div Growth Rate

2.40%

13

13.80%

S&P Capital 12-month price target

S&P Capital Fair Value

Morningstar Fair Value

$87

$79

$74

F.A.S.T Graphs Current P/E

F.A.S.T Graphs 5-Year Avg P/E

Price Target

23.6

17.2

$80

In terms of domestic sales, only Mattel (NASDAQ:MAT) and Lego are larger than Hasbro. The maker of such toys as Transformers, Play-Doh, Monopoly and Nerf, Hasbro has established itself as a major player in the industry. The company also has licensing deals with Marvel, Star Wars and Disney Princess. Each time a new movie is released, new action figures and other toys are released as well. This gives the company a great opportunity to capitalize on the success of the films. Companies that can dominate their sector of the economy can make more money and in turn, pay larger dividends. Those are the types of companies I am looking to add to our portfolio. Is Hasbro a good price right now? Let's take a look.

At the closing price of $86.80 on 4/21/2016, Hasbro yields 2.4%. The company has raised dividends for 13 consecutive years and has a five-year average growth rate of 13.80%. Hasbro just raised the dividend 11% on 4/18/2016. This is very close the five-year average, showing that the company is still aggressively raising the dividend.

With more than 10 consecutive years of dividend growth, Hasbro would be considered a Core Holding by our criteria. As long as the company isn't more than 5% overvalued, it would qualify for purchase. F.A.S.T. Graphs says the current price to earnings ratio is 23.6, while the five-year average price to earnings ratio is 17.2. This makes the company 27.12% overvalued. That is rather high. Morningstar gives a fair value of $77 per share, making Hasbro more than 11% overvalued. S&P Capital isn't all that much better, with a current value of $79.30, which is 8.64% overvalued. S&P capital has a twelve-month target price of $87, really close to the current share price. Altogether, shares are 11.70% overvalued by our guidelines. I am willing to pay up for quality, but I prefer to see shares trade in the $78-$80 range before I would add the company to our portfolio.

Nike (NYSE:NKE)

Current Yield

# Years div growth

5-Year Div Growth Rate

1.08%

14

14.90%

S&P Capital 12-month price target

S&P Capital Fair Value

Morningstar Fair Value

$73

$56

$57

F.A.S.T Graphs Current P/E

F.A.S.T Graphs 5-Year Avg P/E

Price Target

28.4

24.8

$56

There is no more dominate brand for athletic footwear and apparel then Nike. Though it has competition from Under Armour (NYSE:UA) and other apparel companies, Nike still maintains a secure hold on the worldwide athletic wear, thanks. The company is able to raise prices on its high-end products without much blowback from the consumer. Nike can then use those earnings to invest in the business or, even better, increase the dividends to shareholders.

Yes, Nike's yield is low at 1%, but that is due in large part to the increase in share price over the past few years. The share price has increased almost 200% in the last five years. With nearly a 15% five-year dividend growth rate, Nike has shown that the dividend is important to management and that it is serious about rewarding shareholders.

Morningstar sees fair value at $57 per share, just over 5% off fair value of the 4/21/2016 closing price of $60.06. At $56 fair value, S&P Capital sees Nike slightly more overvalued. S&P Capital, however, sees shares at $73 twelve months from now. That would be good for a 21% gain. Finally, F.A.S.T Graphs says the current price to earnings ratio is 28.4. This compares to the five-year average price to earnings ratio of 24.8, which is an almost 13% premium. All told, shares of Nike are just barely overvalued by 0.77%, though of the four metrics I use, only S&P Capital's twelve-month price target is within a buy zone. Every other metric is more than the 5% premium I willing to pay for a company with at least 10 years of dividend growth. If shares were to trade to $56, I would be more likely to pull the trigger for Nike.

VF Corp. (NYSE:VFC)

Current Yield

# Years div growth

5-Year Div Growth Rate

2.36%

43

17.00%

S&P Capital 12-month price target

S&P Capital Fair Value

Morningstar Fair Value

$70

$104

F.A.S.T Graphs Current P/E

F.A.S.T Graphs 5-Year Avg P/E

Price Target

20.4

20.8

Up to $74

VF Corp. is a leading maker of outdoors clothing and gear. Among their more than 30 brands are The North Face, Wrangler, Nautica and Timberland. For those who enjoy outdoor sports, there might not be a better option for products than this company. S&P Capital tells us VF Corp. already has five brands with annual revenues in excess of $1 billion. Morningstar says that The North Face is already the leader in the $25 billion worldwide outdoor market. As with Hasbro and Nike, VF Corp is a major player in its sector of the economy.

As far as dedication to paying dividends, there are few companies in any sector of the economy that have shown the willingness to reward shareholders like VF Corp. The company has raised dividends for 43 straight years. That is a longer dividend growth streak then dividend stalwarts such as Exxon Mobile (NYSE:XOM), AT&T (NYSE:T), Realty Income (NYSE:O) and General Mills (NYSE:GIS). As of 4/21/2016, the company yields 2.31% and has a five-year dividend growth rate of 17%. If you are looking for a combination of dividend dedication, safety and growth, it is hard to find a better stock then VF Corp.

Besides just the dividend, VF Corp also shines when it comes to the current value of the stock. F.A.S.T Graphs states the current P/E ratio at 20.4, with the five-year average P/E ratio at 20.8. That makes the company 2% undervalued at the current price. S&P Capital says current value is $63, which is slightly overvalued. Their twelve-month price target is $70, which would result in nearly a 10% gain in share price. Morningstar is the most bullish of our metrics. With a $78 fair value, they see shares with 22% upside. My metrics say VF Corp. has 8% upside to the current share price. I would be willing to pay a 5% premium for a company with VF Corp.'s history of dividend raises and growth. Therefore, even if shares ran up to the mid-$70s, I would still consider VF Corp. a buy. Eventually, when money is available for purchase, VF Corp. will find a home in our retirement portfolio.

Conclusion

Are you noticing a theme here? I like owning the top companies in a sector of the economy. The "Big Boys" in each industry are able to make more and more money from their products. They can then use those earnings to increase their dividends. Because dividends will fund our retirement, owning companies that are willing and able to increase their payouts are the ones that will power our golden years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are not investment professionals. Please do your own research before making any investment decision