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Dividend Contenders

Dividend Contenders


Moneypaper executive editor Dave Fish has compiled a listing of companies that have paid increasing annual dividends. Updated at the end of every month, the most popular listing is the Dividend Champions, which consists of those that have increased annual payments for 25 or more years. However, for this month's picks we screened for DRIP companies that have only 15 years or more. We believe that these companies may have more room to grow (and that their increases will be larger) than the more established Dividend Champions. We looked for growth stocks where earnings are likely to increase at high rates and found some lesser-known high-quality companies in diverse industries.


One example is UGI Corp., a diversified natural gas and electric utility and the largest propane gas retailer in America. Its dividend payout is roughly 40-45% of earnings and its yield of 3.8% is slightly higher the industry average. The dividend should continue to grow by some 6% per year, and UGI has increased its payouts for 24 consecutive years, which means that the next increase will put it onto the prestigious Dividend Champions listing.


Regional bank People's United Financial, which stands out from the long list of troubled U.S. banks, having increased its payout for 19 consecutive years. Not only did it maintain its dividend during the fiscal meltdown of the recent recession, it did not need or accept TARP (Troubled Asset Relief Fund) assistance. Its shares can be bought right now for about $2 less than its book value of $14.99 per share, and investors receive almost 5% in dividends. Earnings at PBCT were 57⊄ per share in 2011, but twelve analysts are expecting annual earnings of 80⊄ in 2012 and 95⊄ in 2013.


The following companies qualified for this list but were featured in a recent Moneypaper issue: Aqua America (20 straight years of higher dividends), Chevron (24), Church & Dwight (16), Ecolab (20), Graco (15), MDU Resources (21), NextEra Energy (18), Realty Income (18), and Universal Health Realty Trust (23).


Several companies in this portfolio charge fees for investing through their plans. We've marked those companies with an exclamation point. So that fees represent no more than 1% of the investment, we advise you to make larger investments in those companies, even if it means that you must invest in them less frequently (say $300 quarterly, instead of $100 monthly).


These companies all meet our usual criteria for investment (low debt to-asset ratio, leadership in its field, history of earning and dividend increases, and adaptability to economic changes) and they have been reviewed and approved for long-term accumulation by Mike Burke, Dave Fish, Vita Nelson, and Pat Racaniello.


A.O Smith Corp. (AOS): This is a leading manufacturer of electric motors and water heating systems. The founding Smith family owns 84.4% of the Class A shares. Management increased the dividend to 64⊄ per share in September 2011 and annual increases date back 18 years. The company earned $2.11 per share in 2011 and analysts are expecting about $2.81 this year and $3.30 in 2013. (No fees)


Albemarle Corp. (ALB): Manufacturer of performance chemical intermediates for uses in polymers, agriculture, synthetic fluid detergents, and pharmaceuticals, Albemarle also makes catalysts, flame-retardants, and bromide products. Most of its sales are directly to chemical and polymer manufacturers. The company is sitting on $469 million in cash assets, with a total debt load of just $763 million. The annual dividend is 80⊄ per share, up from 31⊄ in 2005. Annual increases date back 18 years. Earnings are expected to jump from $4.80 per share this year to $5.41 in 2013. (No fees)


Arrow Financial (AROW): Arrow is a bank holding company whose principal banks in New York are Glens Falls National Bank and Trust and Saratoga National Bank and Trust. It also owns a health and life insurance agency, a property and casualty insurance agency, a registered investment adviser, and a Real Estate Investment Trust. Annual dividend increases date back 18 years and the current annual rate of $1 per share provides a yield of 4.3%. (No fees)


!Badger Meter (BMI): Badger Meter manufactures residential and commercial water meters, automotive fluid meters, precision valves, electromagnetic inductive flow meters, impeller flow meters, and turbine and displacement industrial flow meters. In 1996, the company paid 10¢ per share annually; it now pays 64⊄. Earnings for 2011 were $1.34 per share, and analysts are expecting Badger to earn about $1.57 per share this year and $1.83 in 2013. The dividend has increased for 19 straight years. (Low fees)


!Buckeye Partners LP (BPL): Buckeye is a master limited partnership (MLP) whose main businesses include transportation of refined petroleum over its 5,400 miles of pipelines that serve 17 states. It also owns 60 liquid petroleum terminals in 14 states and an international unit with two liquid petroleum product terminals, and a storage segment that provides services through a terminal in northern California. BPL is currently paying an annual $4.15 per share distribution, which is expected to grow to $5 by 2016. Looking back, the payouts have been increased each quarter recently, with annual increases for 17 years. (High fees)


!Caterpillar Inc. (CAT): Caterpillar is the world's largest maker of earth moving machinery. Its products include tractors, bulldozers, scrapers, lift trucks, graders, loaders, compactors, pipe laying machinery, and off-highway trucks. The company also manufactures diesel and turbine engines for its products. Foreign sales amounted to 68% of 2010 revenues. CAT is expected to earn about $9.51 per share this year and $11.32 in 2013, compared with $7.40 last year. The dividend has been increased 18 years in a row. (Low fees)


Community Bank System (CBU): CBU is a bank holding company that operates Community Banks via 170 branches in upstate New York and northeastern Pennsylvania. A small well-run bank, the company provides most banking services, including checking, money market, and savings accounts, mortgages, lines of credit, investment and insurance products, and retirement planning. It currently pays an annual dividend of $1.04 per share, for a yield of 3.7%, with annual increases dating back 19 years. (No fees)


!International Business Machines (IBM): IBM derives 64% of its revenues from overseas markets and is the dominant manufacturer of mainframe computers worldwide. Management is directing extra efforts towards rapidly developing emerging markets. Dividend increases have come annually since 1996, and the payout has risen from 33⊄ per share in 1996 to the present $3.00. Earnings totaled $13.44 per share in 2011, expected to rise to about $14.93 this year and $16.49 in 2013. There were 2.35 billion shares outstanding in 1994; today there are 1.16 billion, which should be reduced further by the current $50 billion repurchase program. (High fees)


New Jersey Resources (NJR): NJR is a natural gas utility holding company whose New Jersey Natural Gas serves about 493,000 customers. Its Energy subsidiary provides unregulated retail and wholesale natural gas services to customers in 17 states and parts of Canada and the company also has sizable real estate holdings in New Jersey. The dividend was just increased to $1.52 per share and now yields 3.5%. This marked the 17th year in a row that the dividend was increased. (No fees)


Owens & Minor (OMI): Through 52 strategically located warehouses, Owens & Minor distributes over 220,000 medical and surgical supplies to about 4,400 hospital and health-care facilities around the country. The company has a 10-year earnings growth rate (EGR) of 12.5% and 10-year dividend growth rate (DGR) of 15%, having increased dividends for last 15 years. This growing company posted sales of $3.5 billion in 2000, which had increased to $8.62 billion by 2011. Analysts expect earnings per share of about $2.07 this year and $2.25 in 2013, compared with $1.94 in 2011. (No fees)


!People's United Financial (PBCT): Based in Bridgeport, Connecticut, People's is a diversified financial services firm that offers residential and commercial lending to individuals, corporations, and municipalities through over 300 offices (87 of which are in supermarkets) and more than 400 ATMs. This is one of very few banks that did not cut its dividend payout during the fiscal meltdown and did not need any TARP funds. It now pays an annual 63¢ per share, resulting in a yield of 4.9%. The book value is $14.99 per share and dividends have been raised for 19 years in a row. (High fees)


Polaris Industries (PII): Polaris designs and manufactures all-terrain vehicles (ATVs), snowmobiles, and motorcycles (under the Victory label). It also provides a variety of accessories and spare parts for its machines and has about 1,500 dealers in North America. Total debt and cash assets are identical at $325 million. The latest dividend increase (in March) boosted the quarterly payout more than 64%, from 22.5⊄ to 37⊄ per share, marking the 17 straight year of increases. Earnings are expected to grow from last year's $3.20 per share to about $3.87 this year and $4.51 in 2013. (No fees)


Praxair Inc. (PX): Praxair is the world's second largest producer of industrial gases. It produces atmospheric and process gases, as well as high-performance surface coatings, which it sells to the aerospace, chemicals, food/beverage, electronics, energy, healthcare (respiratory oxygen), manufacturing, metals, and other sectors. Dividends have risen almost six-fold just since 2001 and have been increased each year since 1992, to the current annual rate of $2.20 per share. Earnings were $5.45 per share in 2011, expected to grow to $5.83 this year and $6.63 in 2013. (No fees)


UGI Corp. (UGI): UGI is an international distributor and marketer of energy products and related services. It distributes propane to approximately 1.3 million customer­­s comprising residential, commercial/industrial. It sells, installs, and services propane appliances, including heating systems in all 50 states. The company also distributes liquid petroleum gas and distributes natural gas and electricity to 637,000 customers in Pennsylvania. Dividends have been increased annually for 24 straight years. (No fees)


!United Technologies (UTX): UTX has 6 units: Otis designs and manufactures escalators, moving walkways, and passenger and freight elevators; Carrier offers residential, commercial, and industrial HVAC (heating, ventilation, and air conditioning) and refrigeration systems and equipment; UTC Fire & Security provides fire and special hazard detection and suppression systems; Pratt & Whitney supplies aircraft engines; Hamilton Sundstrand offers aerospace products; Sikorsky manufactures military and commercial helicopters. UTX also develops geothermal and fuel cell power systems. A growth rate of 15% over the past 10 years has seen dividends rise from an annual 49⊄ per share to the present $1.92. Dividends have been raised 17 years in a row. (High fees)


West Pharmaceutical Services (WST): Operating two segments (Pharmaceutical Systems and Tech Group), West manufactures systems for drug delivery via injections, plastic packaging, and delivery system components for the healthcare and consumer markets. It also provides contract analytical laboratory services for testing and evaluating drug packaging components. With 52% of revenues coming from foreign sources, its products are primarily sold in the United States, Germany, France, and other European countries. The company has posted 19 straight years of increased dividend payouts. (No fees)


! Charges fees