The late David Fish created and maintained a list of companies that increased their dividends every year for 25 and more years. He called them Dividend Champions. He also included companies that increased their dividends every year for 5 thru 9 years, called Dividend Challengers. And finally, he had a list of companies that increased their dividends every year for 10 thru 24 years and called them Dividend Contenders. After David passed away, Justin Law took the reins about a year ago and is now maintaining the list at The Drip Investing Resource Center.
I have grouped these 3 lists of dividend “super stars” into one group called Dividend Diamonds. As of 5/31/19, there are 884 public companies that have increased their dividends every year for 5 or more years. The good news is that the number has been increasing over the last few months and years.
I maintain a database of over 600 preferred stocks and ETD securities at I Prefer Income. There are 86 dividend diamond companies in the database that have 212 preferred stocks and/or ETD securities. This list of parent companies is shown below in table 1. The list is sorted by the number of years the parent has increased their common stock dividend on a consecutive basis. It also shows the number of preferred stocks/ETD securities they have and the yields of those issues. Please note that at the bottom of the list, there are 3 companies that have increased their dividend 51 consecutive years! Quite an accomplishment.
By looking at Table 1 above, you can see that the yields of the 212 preferred stocks/ETD securities range from 3.7% to 9% (last column). From the 212 issues, I created table 2 with a narrowed list of the highest yielding preferred stocks/ETD securities from the parent companies that are designated as Dividend Diamonds.
(Click to enlarge image)
Introducing the highest-yielding dividend diamond preferred stocks and ETD securities in the marketplace
Table 2 contains 5 dividend diamond companies that have increased their dividend from 6 to 45 consecutive years. These companies have 8 preferred stocks and ETD securities with yields ranging from 6.5 to 9%. The parent companies are located in the gray row with their preferred stocks/ETD securities located directly under them. There are 22 fields of information with blue rectangles placed around the 5 areas of analysis: dividends, earnings, payout ratios, debt ratios and ratings.
This simple analysis uses the Where’s the Metrics system to help determine the overall financial health of the parent company and their ability to pay a reliable and sustainable distribution. If you have not read about the Where’s the Metrics analysis system, please click on this link to review it. The purpose of this general review is not to give recommendations but to show areas of strengths and weaknesses from each company. From this review, readers will have a better understanding of the company and be able to do further research if warranted.
The 5 metrics that are used to analyze these securities are listed below:
- Earnings of parent – annual & quarterly GAAP and Non-GAAP reports
- Payout ratios of parent – common stock dividend / preferred stock dividend payout ratios
- Debt Ratios of parent – debt to EBITDA / debt to equity ratios
- Credit Ratings of preferred / ETD securities – ratings from Moody’s and S&P.
- Dividend Metrics of parent – dividend / spread between current yield and 10-year median yield / 3-year average annual dividend growth / dividend diamond
When doing a general review, I am comparing the metrics of the parent company in all areas except credit ratings. The purpose of the review is to get a better idea of the overall financial health of the parent because they are responsible for maintaining and paying the distributions on the preferred stocks.
Before we begin, take a good look at the 5 parent stocks and the 5 areas of analysis marked in blue.
- 4 of the 5 companies have good GAAP earnings. SOHO has weak earnings, but we will review their non-gaap earnings further in the article.
- All 5 companies report common and preferred stock dividend payout ratios under 1.
- Debt ratios are generally weak for 3 of the 5 companies.
- 2 of the 5 companies do not have ratings for their preferred/ETD securities and none are investment grade.
- All 5 of the companies pay a dividend and have good dividend metrics.
Review of each parent company
Apartment Investment and Management Company
Apartment Investment and Management Company (AIV) is a REIT specializing in apartment homes and communities. They started in 1975 and went public in 1994 and are now considered one of the largest owners and operators of apartments in the U.S. They have 1 cumulative preferred stock (AIV-A) priced at $25.16 with a yield of 6.8%. The call date is over and they issue a 1099.
Earnings: AIV has a perfect record of profits, with the last 5 years and 5 quarters being profitable on a GAAP basis. Since they also report Non-GAAP earnings of AFFO, it is important to compare EPS to AFFO. Table 3 shows both EPS and AFFO for the last 5 years and 5 quarters. This table shows consistent and growing EPS and AFFO results.
Payout ratios: Common stock dividend payout ratio of .70 and preferred stock dividend payout ratio of .03 are based on AFFO. These are good results and show they have the ability to pay their both common and preferred dividends.
Debt ratios: Both debt-to-EBITDA and debt-to-equity are good, especially based on the industry averages of 7.1 for debt-to-EBITDA and 1.6 for debt-to-equity (based on 14 apartment REITS, courtesy of IPI).
Credit ratings: S&P has a rating of BB; however, the credit ratings are below investment grade.
Dividends: AIV has paid a common stock dividend since 1994. They reduced it during the great recession in 2009 and then began to increase it from that time forward. Table 3a shows yearly and quarterly dividends since 2010.
(Table 3a, AIV Dividend History)
The spread between yield and 10-year mean yield is 0. The company has been increasing the dividend at a rate of 7.3% over the last 3 years. And finally, AIV is a dividend diamond and has increased their dividend every year for the last 9 years.
Review results: My review indicates that AIV is doing well in 4 of the 5 categories. Credit ratings is the only category of weakness if you consider an Investment grade rating to be the standard.
Brookfield Property Partners L.P.
Brookfield Property Partners L.P. (BPY) is a global diversified REIT specializing in long-life, high-quality assets and businesses that form the backbone of the global economy. BPY has 1 cumulative preferred stock, BPYPP, with a price of $25.09 and a yield of 6.5%. The call date is in 2024 and they issue a 1099.
Earnings: BPY also has a perfect record of GAAP earnings with 5 out of 5 years and quarters of profits. They also report FFO (funds from operations). Table 4 displays both EPS and FFO.
Payout ratios: The payout ratios are based on FFO and provide adequate coverage to pay the common stock and preferred stock dividends.
Debt ratios: Both debt-to-EBITDA and debt-to-equity ratios of 8.2 and 4.4 are high. The peer group of 11 other diversified REITS have ratios of 6.8 and 1.96 (from IPI database), so they are above both and should be reviewed.
Credit ratings: S&P has a rating of BB+; however, the ratings are below investment grade.
Dividends: I find dividend records going back to 2013, but they are a dividend diamond with 7 consecutive years of ever-increasing dividends. See table 4a for dividend history since 2013.
(Table 4a, BPY dividend history)
Current yield is 6.9% and the 10-year median yield is 4.9% so the market is apparently undervaluing the common stock under current economic conditions. The 3-year average annual dividend growth rate is 5.8%.
Review results: The review shows that BPY is doing well in 3 of the 5 categories. Debt appears to be high and ratings are below investment grade. I note that several Seeking Alpha authors have written favorably about BPY; however, Michael Boyd has written a recent article entitled “Brookfield Property, The Real Reason To Be Concerned By Leverage” that readers may want to read regarding the debt issue.
Gaslog Partners LP
Gaslog Partners LP (GLOP) is a shipping company with a 100% focus on LNG (Liquified Natural Gas) carriers. They currently own 15 carriers and have the dropdown rights to 13 other carriers from their parent Gaslog Ltd. Most of the vessels are on long-term charter arrangements with national companies. GLOP has 3 cumulative preferred stocks (GLOP-A, GLOP-B and GLOP-C) with prices from $23.36 to $24.48 and yields from 8.8% to 9%. Call dates are several years in the future and they issue a 1099 tax form. All 3 issues offer tax advantages.
Earnings: GLOP is another company in this group that has a perfect record of 5 years and 5 quarters of GAAP profits. They also report Non-GAAP earnings of DCF (Distributable cash flow) to provide a better way of analyzing their ability to pay the dividend, so Table 5 shows the comparison between EPS and DCF. Both metrics have been decreasing, but still positive.
Payout ratios: Both payout ratios are enough to cover the common and preferred stock dividend, but with a common stock dividend payout ratio of .97, it leaves little room for error. However, remember that even if the company had to reduce the common, it would not hurt the company’s ability to pay the preferred stock.
Debt ratios: The debt-to-EBITDA ratio of 4.2 is a bit high, but the debt-to-equity ratio of 1 is better.
Credit Ratings: All of the issues are not rated by either Moody’s or S&P.
Dividends: GLOP has been paying dividends since 2014 and is a dividend diamond with 6 years of ever-increasing dividends.
(Table 5a, GLOP dividend history)The 3-year average annual dividend growth rate is 5.2%. The current yield on the common stock dividend is 10.5%. Since the 10-year median yield is 8.7%, it appears that the market has placed more risk on the common than what the median yield has been in the past.
Review results: Gaslog Partners LP has done well in 3 out of 5 categories, with debt and credit ratings coming up short. In addition, the common stock dividend could be coming under pressure if DCF continues to drop. I note that Powerhedge (Seeking Alpha author) has written a recent article about GLOP and has discussed the earnings and payout issues with some good observations. The article is entitled “Gaslog Partners: Continuing to Perform Well.”
Sotherly Hotels Inc
Sotherly Hotels Inc (SOHO) is a hotel and lodging REIT with a focus on up-scale hotels in the southern U.S. They currently own 12 hotels with 3011 rooms. They went public in 2004. They have 3 preferred stocks, but only 1 that meets the requirements of this article. SOHO is priced at $25.37 with a yield of 6.8%. The call date is 10/15/22 and the company issues a 1099.
Earnings: SOHO has a poor record of GAAP earnings with 1 year and quarter of profits and 4 years and quarters of losses. However, since they have a large amount of depreciation, they also provide AFFO (adjusted funds from operations) that takes out several non-cash expenses. Table 6 displays the comparison between EPS and AFFO. The contrast is huge, but the good news is that AFFO is stable since 2014.
(Table 6, SOHO earnings comparison)
Payout ratios: We are using AFFO to determine the payout ratios and they come in at .48 and .27. Their peer group of 17 hotel REITS have an average of .52 and .50 for dividend payout and preferred payout ratios, so they have better ratios than the average (from the IPI database). These results show that they have adequate coverage to pay the common and preferred stock dividends.
Debt ratios: The debt-to-EBITDA and debt-to-equity ratios are high at 9.5 and 4.9. Both of these debt metrics are the highest of all 5 companies in this article and raise concerns. And when comparing them to their lodging peers, they are high. The 17 peers have an average debt-to-EBITDA of 5.8 and debt-to-equity of 1.9.
Credit ratings: Moody’s and S&P do not rate the preferred stock.
Dividends: SOHO has been paying dividends since 2005, but stopped paying them in 2010 after the great recession. They started paying dividends again in 2011 and have been increasing them ever since. They are a dividend diamond with 9 years of ever-increasing dividends.
(Table 6a, SOHO dividend history)
The 3-year average annual dividend growth rate is 15.6%, which is the highest of 5 of the companies in this article. The current yield of the common is 6.8% and the 10-year median yield is 4.4%. Like some of the other companies in this article, the spread may indicate that the market is concerned about something and thus prices the stock low and yield higher than normal.
Review results: The review shows that SOHO has done relatively well in 3 out of 5 categories. The weak categories are debt and ratings. The debt ratios are the highest of the group and below the average for all REIT lodging companies. I should note however, that Brad Thomas (Seeking Alpha author) has recently written a very positive article on SOHO entitled “SOHO Series D: Earn 8.2% With This Diamond In The Rough.”
Telephone and Data Systems, Inc
Telephone and Data Systems, Inc (TDS) provides comprehensive telecommunications services and products to consumers and businesses across the United States. This includes wireless and legacy phones, security, broadband, cable and hosted services. They have 4 ETD securities, but only 2 that meet the requirements for this article. (TDE) and (TDJ) are priced between $25.09 and $25.38 and both have yields of 6.9. Call dates were in 2015 and 2016.
Earnings: TDS has a good record of GAAP earnings with 4 years and 5 quarters of profits. 2014 was the last year to report a loss. Even though they are profitable, they do not appear to be growing the earnings.
Payout ratios: Since TDS does not have preferred stock, the preferred stock dividend ratio does not apply; however, the common stock dividend ratio is .49. That is the 2nd best ratio of this group and shows that the dividend is well covered.
Debt ratios: Both debt ratios are the lowest of the 5 companies in the article.
Credit ratings: Moody’s and S&P ratings are Ba2/BB. They are the only securities to be rated by Moody’s. However, neither are investment grade ratings.
Dividends: TDS has been increasing their dividend every year for the last 45 years and are designated as a dividend diamond. That probably tells the story on this company.
(Table 7a, TDS dividend history)
The 3-year average annual dividend growth rate is 4.5%.
Review results: The review shows that TDS has done well in 4 of 5 categories. Even though they are the only company to have ratings from Moody’s and S&P, they are still below investment grade. I think the one area of concern for me is that earnings do not appear to be growing; although the latest quarter did show some signs that the future may be improving. However, the payout ratio is low enough to where the common stock is in no danger of being cut, and since these 2 securities are ETD, they are safer than both common and preferred stocks.
I note that Wealth Insights (Seeking Alpha author) has recently written an article with some interesting thoughts called “Dividend Champion Spotlight: Telephone and Data Systems.”
Dividend Diamonds – Summary of 5 companies with the highest yielding preferred/ETD securities in the marketplace.
The purpose of this article was to highlight those companies designated as dividend diamonds (AKA dividend challengers, contenders and champions) and to review the highest-yielding preferred stocks and ETD securities in the list. I use a simple analysis system called “Where’s the Metrics” that review 5 areas: earnings, payout ratios, debt ratios, credit ratings and dividend metrics. This general review helps to determine the overall financial condition of the parent company and their ability to pay a reliable and sustainable distribution. It is not meant to give recommendations but to show areas of strengths and weaknesses from each company.
From the 884 public companies that have increased their dividends 5 or more years in a row, we discovered 84 on our database and then narrowed the field to 6 preferred stocks and 2 ETD securities with the highest yields (with a price below $25.40). The 5 companies that are responsible for the 8 securities are AIV, BPY, GLOP, SOHO and TDS. Table 2 shows the list of 5 dividend diamonds companies and 8 preferred/ETD securities and the 5 areas of review.
Each of the 5 have been reviewed earlier, but to summarize, here are my thoughts. All of the 5 companies have areas of strength and weakness. They all rate well in at least 3 of the 5 review categories of earnings, payout ratios and dividends. 3 of the 5 have potential issues with high debt and all 5 are either not rated or rated below investment grade by Moody’s or S&P. The good news is that all 5 have done well enough to earn the designation of dividend diamonds. That is a nice achievement. But keep in mind that the real goal is to determine if the company is strong enough to pay the preferred stock dividend or the interest on the ETD on a reliable and sustainable basis. The preferred stock dividend payout ratio might be the best metric to answer that question, and all companies that have preferred stocks have excellent ratios.
I hope this article has brought attention to these dividend diamond companies and that you may have discovered 1 or more gems that warrant further research. If so, I would recommend reading the last quarterly report and the SA articles I highlighted. With the economy doing well and interest rates stabilized (and possibly going lower), many people are turning to preferred stocks as a good source of income. Is it time to add more income-producing securities to your portfolio?
Thanks for reading.
Disclosure: I am/we are long BPYPP, TDE. 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: This article was written for informational purposes only and is not intended as personal investment advice. Please practice due diligence before investing in any security mentioned in this article.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.