Searching For Stocks With Solid Dividend Increases

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Jan 27, 2015
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Dividend-paying stocks are vital for income investors. There are several metrics to examine when sorting through the options, one of the most important of which is the company’s history of dividend increases — crucial for long-term investors.

GuruFocus’ All-In-One-Screener allows investors to search for stocks using more than 120 filters. To find stocks with consistent dividend increases, I clicked on the “Dividend” tab in the screener and selected stocks with at least 30 years of dividend increases. For this article, I’ll examine stocks in the Yacktman Fund (Trades, Portfolio)’s portfolios, since this was recently updated for Q4 2014. In the “Gurus” tab in the screener, simply select Donald Yacktman (Trades, Portfolio) or another guru of your choice.

The following are the stocks within the Yacktman Fund (Trades, Portfolio)’s portfolio with consistent dividend increases of at least 30 years.

PepsiCo (PEP, Financial)

The fund owns 12,160,000 shares of PepsiCo, which accounts for 9.7% of the portfolio.

PepsiCo has continuously increased its dividend since 1985. The current dividend yield is 2.57%, while the five-year growth rate is 6%. In the company’s Q3 2014 earnings press release, PepsiCo said it expects to return $3.7 billion to shareholders through dividends by the end of 2014. The company will release its year-end results and whether it met this goal on Feb. 11.

The most recent dividend was paid on Jan. 7 at $0.655 per share. PepsiCo’s payout ratio is 54%, much lower than the industry average of 83%. For comparison, Coca-Cola’s (KO, Financial) payout ratio is 66%. Since PepsiCo’s earnings per share have increased steadily over the past 10 years, the dividend is likely to be sustainable.

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Sigma-Aldrich Corp (SIAL, Financial)

The fund owns 846,000 shares of Sigma-Aldrich, which comprises 0.98% of the portfolio.

Sigma-Aldrich is a life science and technology company that produces about 230,000 chemicals, biochemicals, and other products for research labs, industrial, and commercial markets.

The company has continuously increased the dividend since 1984. The current yield is 0.7%, which is near the 10-year low.

According to the 2013 annual report, Sigma-Aldrich repurchased $146 million in share buybacks during the year, and returned $103 million through dividends.

Sigma-Aldrich’s current payout ratio is a relatively low 26%, which is lower than 85% of companies in the Global Specialty Chemicals industry. A lower payout ratio indicates a sustainable dividend with more room to grow in the future. Earnings per share have grown at a much higher rate than dividend per share, meaning the company has room to increase DPS.

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Walmart (WMT, Financial)

Yacktman owns 1,700,000 shares of Walmart, comprising 1.2% of the portfolio.

Walmart has continuously increased its dividend since 1984. The current yield is 2.2%, while the five-year growth rate is 14.6%. In Q3 2015, Walmart paid $1.5 billion in dividends and repurchased $82 million worth of shares.

The current payout ratio is 40%, compared to the Discount Store industry average of 59%. When comparing the dividend per share to earnings per share, the dividend seems stable with room for growth.

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