When measuring a company's stability and profitability, a track record of steadily rising dividends is one of the most important indicators. It is a great sign if you are looking for a trustworthy stock- and an ornament for companies. If you want to know whether a company can sustain its payments or not, you need to look at its free cash flow to payout ratio (FCF payout ratio), which needs to be as low as possible. Companies with lower FCF payout ratio are most likely to keep paying dividends in a stable track. CNBC recently compiled a list of the fifteen companies that keep raising their dividends for the last 15 years. I have analyzed twelve out of them, eliminating non-large caps and dividing my article into two. O-Metrix Grading System is applied where possible, as well. Here are the first six stocks of these dividend raisers.
(Data obtained from Finviz/Morningstar, and current as of January 25. You can download the O-Metrix calculator here.)
Genuine Parts (GPC)
Genuine Parts has declared that it has finally bought a 30% stake in the Exego Group. The agreement was pending for months, and the stake is worth about $150 million. The automotive parts distributor is trading at a P/E ratio of 18.6, and a forward P/E ratio of 16.4. Five-year annualized EPS growth forecast is 10.0%. It pays a 2.79% dividend, and the profit margin is 4.5%, lower than the industry average of 5.3%.
With a Beta value of 0.77, Genuine Parts is the least volatile stock among its peers. Assets and cash flow are quite strong with a 5% average annual dividend increase over the last 15 years. When I look at the future of Genuine Parts, I see no big handicap. The company has a massive distribution network, a lovely management team, and a great dividend background. Moreover, it has enlarged its arsenal with the newest purchase in the Exego Group. However, Relative Strength Index (72.00%) indicates that the stock is overbought currently. Just wait for a sell-off. Based on these numbers, Genuine Parts has an O-Metrix score of 3.65.
Becton, Dickinson and Company (BDX)
Becton Dickinson has recently announced that a live webcast conference will be held on February 7, regarding its first fiscal quarter 2012 earnings. It shows a trailing P/E ratio of 14.0, and a lower forward P/E ratio of 12.3. Estimated annual EPS growth for the next five years is 9.5%. Profit margin (16.2%) is higher than the industry average of 12.8%, and dividend yield is 2.30%.
Becton Dickinson is one of the least volatile medical instrument supplier with a Beta value of 0.59. Debt-to equity ratio (0.5) is also lovely, below the industry average of 0.8. The company is highly resistible to recessions and offers stable dividends with an appetizing payout ratio. Average 15-year annual dividend increase is 17%. Like Morningstar states, Becton Dickinson's "needle and surgical tool empire has provided investors with robust returns on capital for years." I suggest waiting for the stock to fall somewhere near $70. Becton Dickinson has a C Grade O-Metrix score of 4.48.
3M Company (MMM)
3M Company has made an investment in HydroNovation Inc., a water conditioning systems developer. It shows a trailing P/E ratio of 14.6, and a forward P/E ratio of 13.6. Analysts estimate an 11.1% annualized EPS growth for the next five years. Dividend yield is 2.56%, and profit margin is 14.6%.
Although 3M suffered from sell-offs in the third quarter last year, the company is mending itself quite fast since then. It has been increasing its dividend around 6% every year. If 3M buys Avery Dennison (AVY), it will have a stronger presence in the office supply sector. As of the time of writing, 3M is trading at $85.93 with a 52-week range of $68 - $98. This stock is a trustworthy profit generator in the long run. Based on these numbers, 3M has an O-Metrix score of 4.84.
W.W. Grainger (GWW)
W.W. Grainger has just unveiled its latest quarterly results. The Illinois-based company is selling 22 times earnings, and 19 times forward earnings. Analysts expect the company to have a 14.9% annualized EPS growth in the next five years. Profit margin (8.2%) is way above the industry average of 5.3%, while it offers a 1.30% dividend.
With a 43% FCF payout ratio, W.W. Grainger has kept increasing its annual dividend by around 13% for the last 15 years. Earnings increased by 12% in the fourth quarter of 2011, and revenue by 14%. Assets and cash flow are breathtaking. Moreover, cash flow sustains a stock buy-back program. With a large range of products, a solid balance sheet and strong field performance, W.W. Grainger is a primary candidate for your portfolio. The stock has an O-Metrix score of 3.84.
Ecolab, Inc. (ECL)
Ecolab is planning to cut around 500 jobs as part of cost-cutting and restructuring. It sells at a P/E ratio of 28.5, and a forward P/E ratio of 20.2. Five-year annual EPS growth forecast is 14.3%, which is fair given the 12.6% EPS growth of past five years. Profit margin (7.7%) is higher than the industry average of 7.0%, while it offers a 1.31% dividend.
Although there was a disconnection between July 2008 and December 2009, dividends are pretty stable in general. Ecolab is the second least volatile stock in its industry with a Beta value of 0.71. With a FCF payout ratio of 41%, Ecolab increased its annual dividend by around 16% in the last 15 years. As a leader in the cleaning industry, Ecolab offers generous returns to its shareholders. Just wait for a correction before buying. As of the time of writing, Ecolab is trading at $60.98 with a Relative Strength Index of 77.16%. O-Metrix score of the stock is 3.20.
The TJX Companies (TJX)
TJX Companies is in overbought territory for about three weeks, and it is still going higher. The off-price apparel and home fashions retailer is selling 19 times earnings, and 15 times forward earnings. Estimated annual EPS growth for the next five years is 13.1%. It pays a 1.13% dividend, and the profit margin is 5.9%, slightly higher than the industry average of 5.7%.
The stock is going straight up since the Lehman recession. Dividends and revenue are appealing. TJX is the least volatile stock among its peers with a Beta value of 0.57. Since July 2007, earnings-per share [ttm] has come from 1.39 to 3.47. TJX has been reporting solid sales and profit growths for a long time, and it is a dividend stock ready to boost your retirement portfolio. While it will likely go north in the long run, I recommend waiting for a pullback now. Based on these indicators, TJX has an O-Metrix score of 4.12.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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