There are two types of dividend stocks: those that increase their annual dividend payments year after year, often referred to as Dividend Aristocrats, and those that grow their annual dividends by double-digit percentages every year.
In early January, Rob Carrick, one of Canada’s best personal finance columnists, wrote an article about dividend stocks that doubled their payouts over the past 10 years.
With an assist from Tom Connolly of DividendGrowth.ca, they’ve put together a list of stocks that have delivered 10-year annualized dividend growth of 7.2%.
That’s the amount of growth you’d need based on the Rule of 72 — 72 divided by 7.2% equals 10– the number of years growth required to double a company’s dividend payout.
Now the names on the list, while excellent businesses, are mostly traded exclusively on the Toronto Stock Exchange. Thus, some of them are only available over-the-counter, through a broker that has access to the TSX, or not at all.
Of the 15, eight trade on a U.S. exchange. I’d check them out.
- Masco (NYSE:MAS)
- Rollins (NYSE:ROL)
- Moelis & Company (NYSE:MC)
- Tractor Supply (NASDAQ:TSCO)
- Victory Capital (NASDAQ:VCTR)
- GlaxoSmithKline (NYSE:GSK)
- T. Rowe Price (NASDAQ:TROW)
- S&P Global (NYSE:SPGI)
- Open Text (NASDAQ:OTEX)
- FirstService (NASDAQ:FSV)
In the meantime, here are 10 dividend stocks that are likely to do the same.
Dividend Stocks to Buy: Masco (MAS)
Business has been good for the global leader in home improvement and building products whose brands include Behr Paint, Delta faucets, and Endless Pools.
On Feb. 9, the Michigan-based company announced that it was increasing its annual dividend by 68% from 56 cents to 94 cents, starting with the Q2 2021 payment. Also, the company announced a new $2 billion share repurchase program effective immediately.
“The anticipated dividend increase we’ve announced today, along with the new $2B share repurchase authorization, underscores our strong financial position and the Board’s confidence in our future,” stated Chief Executive Officer Keith Allman.
In recent years, Masco has ridden the home improvement boom to deliver a five-year annualized total return of 17.3% through Feb. 12.
With a trailing 12-month (TTM) free cash flow (FCF) of $840 million, it has an FCF yield of 5.3% based on an enterprise value of $15.8 billion.
I’ve always liked Rollins, one of the world’s largest providers of pest control services.
In May 2016, I included ROL in a group of 10 top stocks that ought to be in every retirement portfolio. It’s up 224% since then, and that doesn’t even include the dividends.
“Over the long haul, it hasn’t disappointed delivering 18 consecutive years of earnings growth and 14 consecutive years of dividend increases averaging 12%,” I wrote on May 18, 2016.
In fiscal 2020, Rollins increased sales and earnings by 7.2% and 13.3%, respectively. Accounting for the 3-for-2 split on Dec. 10, 2020, Rollins’ board announced on Jan. 26 that it would increase its quarterly dividend by 50% over Q4 2020 to 8 cents starting with its February 2021 payment.
The company paid out $161 million in dividends in 2020, up from $154 million in 2019. The company repurchases very little of its stock. Between 2017 and 2019, it repurchased just $28 million of its shares, opting to use most of its free cash for dividends and acquisitions.
Rollins has a trailing 12-month free cash flow (FCF) of $380 million. That works out to an FCF yield of 2% based on an enterprise value of $18.8 billion.
It’s not cheap at current prices, but it will deliver an above-average total return [dividend income plus capital appreciation] over time.
Definitely buy this one on the dips.
Moelis & Company (MC)
Moelis & Company is an independent investment bank based in New York City that went public in April 2014 at $25 a share. If you bought some of its initial public offering (IPO) and still hold it today, you’re sitting on a 119% return.
There is no question the investment bank has had its ups and downs. In June 2018, it flirted with $70 before falling gradually to its 52-week low of $22.11 during the March 2020 correction.
On Feb. 10, 2021, the company reported record Q4 2020 revenues of $422 million, up 89% from a year earlier. On the bottom line, its adjusted net income was $146 million, up considerably from $26 million in Q4 2019.
In 2020, the company paid out dividends and executed share repurchases totaling almost $275 million. It included a $2 a share special dividend paid out in December while also increasing the regular quarterly dividend by 44% from the previous quarter and 8% from pre-Covid-19 levels.
Tractor Supply (TSCO)
Tractor Supply is one of my all-time favorite companies, retail or otherwise. Its business model servicing the rural lifestyle makes abundant sense.
In 2001, Tractor Supply made a transformative acquisition, acquiring bankrupt Michigan-based Quality Stores, a competitor with 85 stores at the time. It had 323 stores. Today, it has almost 2,000.
It hasn’t been as lucky with another acquisition it made. In 2016, it acquired Petsense, a retailer of pet supplies, for $116 million. Petsense had 136 stores at the time. In Q4 2020, the company had non-cash pre-tax impairment charges of $74.1 million related to its Petsense operations.
As a result of the charge, Tractor Supply’s operating income in the fourth quarter was $184.5 million, 3.1% lower than a year earlier. On the plus side, fourth-quarter sales were 31.3% higher over Q4 2019.
The board announced on Jan. 28 that it would increase its quarterly dividend by 30% to 52 cents a share.
Tractor Supply is an outstanding retail stock to own for the long haul.
Victory Capital (VCTR)
I thought Victory Capital was the only firm on my list of 10 dividend stocks that I’m unfamiliar with. Then it dawned on me that it’s the company behind VictoryShares and ETFs such as the VictoryShares Nasdaq Next 50 ETF (NASDAQ:QQQN).
However, if the San Antonio-based asset management firm keeps delivering quarterly results as it did in Q4 2020, I’ll have to get a lot more acquainted with it in a real hurry.
The company finished fiscal 2020 with $136.4 billion in assets under management (AUM), 33% higher than a year earlier. A part of the increase was due to its 2019 acquisition of USAA Asset Management.
On the bottom line, Victory generated record adjusted net income of $285.5 million in 2020, 48% higher than a year earlier.
As part of the Feb. 10 press release of its fourth-quarter earnings, Victory Capital’s board announced a 29% increase in its quarterly dividend to 9 cents a share. It is the company’s third increase in a year.
Anyone who suffers from back or joint pain is likely familiar with Voltaren, one of GlaxoSmithKline’s many products made by its consumer healthcare products division, merged with Pfizer’s (NYSE:PFE) consumer healthcare business in August 2019. It plans to separate the joint-venture into its own separate company.
In addition to Voltaren, it makes Polident, Otrivin, Advil, Tums, and Centrum, and many others. Once GSK separates its consumer healthcare products business, it will focus on pharmaceuticals and vaccines.
On Feb. 3, GSK reported its full-year results. They included a 3% sales increase year-over-year of 34.1 billion euros ($41.3 billion) and an FCF of 5.4 billion euros ($6.6 billion), 7% higher than in 2019.
As for the dividend, it’s a bit of a mixed bag.
Although the company increased its quarterly payment by 15% from $0.1746 a share to $0.2008 starting with the December 2020 payment, it also said that it wouldn’t increase the total dividend payments in 2021 from what it paid out in 2020.
I’ve put it on the list of dividend stocks because it should provide investors with a much better entry point to buy its stock. It’s a definite value play at this point.
T. Rowe Price (TROW)
One of the four financial services companies on my list of dividend stocks, the Baltimore-based company announced on Feb. 10 that it was raising its quarterly dividend by 20% to $1.08 per share, the 35th consecutive year it has done so. That makes it a Dividend Aristocrat. The $4.32 annual payout yields a reasonable 2.7%.
On Jan. 28, T. Rowe Price reported Q4 2020 revenues of $1.73 billion, 18% higher than a year earlier, while adjusted earnings per share were 42% up over a year earlier.
It was a good year for the investment manager in terms of asset gathering. In 2020, it had net client inflows of $5.6 billion, finishing the year with $1.47 trillion in assets under management. Its average assets under management in 2020 increased by 12.5%.
The company finished 2020 debt-free with $6.2 billion in cash and investments in T.Rowe Price products. That’s up from $5.6 billion a year earlier.
As long-term investments go, income investors ought to like T. Rowe Price.
S&P Global (SPGI)
This isn’t the first time I’ve picked S&P Global as a stock to buy because of its increasing dividend. In April 2020, I picked SPGI stock along with nine other S&P 500 dividend stocks. Since then, it’s up 26%, a respectable, if not spectacular, return over 10 months.
On Jan. 27, it announced that it was increasing its quarterly dividend by 15% to 77 cents from 67 cents. S&P Global has paid a dividend each year since 1937 and increased its annual dividend for 48 consecutive years.
In 2020, SPGI returned $1.8 billion to shareholders, including $645 million for dividends and $1.16 billion in share repurchases, no mean feat during a pandemic.
“Increasing the dividend demonstrates our confidence and optimism in the continued strength of our cash flow generation and financial position,” said Douglas L. Peterson, CEO of S&P Global. “Returning cash to shareholders remains a cornerstone of our shareholder value proposition.”
It has a very attractive FCF yield of 4.2% based on TTM FCF of $3.49 billion and an $82.34 billion enterprise value.
Open Text (OTEX)
One of two Canadian companies that I’ve chosen for this article, Open Text is a cloud-based software company whose products and solutions help manage and utilize their information.
The last year has not been kind to shareholders. Open Text stock’s generated a 52-week total return of just 2.5%, well below its software application peers, who gained 55.8% over the past year.
However, its latest earnings report delivered hope. Excluding currency, the company reported recurring revenue of $674 million in Q2 2021, 19.5% higher than a year earlier. At the same time, its free cash flow was 46.5% higher to $275 million. Its free cash flow on a TTM basis is $1.07 billion for an FCF yield of 6.9% based on an enterprise value of $15.5 billion.
That FCF yield’s approaching value territory.
On Feb. 4, Open Text announced its March 2021 dividend would be $0.2008 a share, 15% higher than a year earlier.
FirstService is the second of my Canadian picks of dividend stocks. The provider of residential property management and property services has been on my favorites list for some time. In December, I put FSV on my list of Canadian stocks to own that make money from America.
On Feb. 4, FirstService announced it was increasing its quarterly dividend by 10% from $0.15 to $0.165. The annual payment of 66 cents yields a meager 0.4%. However, you won’t be sorry for owning its stock. It’s got a five-year annualized total return of 32.8%, almost three times the return of the U.S. markets as a whole.
The dividend increase is FirstService’s fifth consecutive year upping it by 10% or more.
Highlights of fiscal 2020 include a 15% increase in revenues to $2.77 billion, while its adjusted earnings per share were up 15% year-over-year to $3.46.
“We capped off the year with a very strong fourth quarter, largely driven by organic growth,” said CEO Scott Patterson. “We are proud of our performance throughout 2020, demonstrating strength and stability in the face of the pandemic, and we look forward to capitalizing on our growth opportunities as the environment improves.”
This could be the best fly-under-the-radar dividend stock available.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.