3 companies rewarding Sharehol – GuruFocus.com
As a dividend growth oriented investor, a further increase in dividends is always music to my ears because it means my investments will generate more income. In this article, we’ll take a look at three companies that just announced dividend increases and whether any of those stocks could be bought today.
Microsoft Corporation (MSFT, Financial) is a global software and hardware giant. The company provides operating systems, business software, cloud services, video games, and gaming hardware to its customers. With a market capitalization of over $ 2,000 billion, Microsoft is one of the largest public companies in the world. The company generates annual revenues of $ 168 billion.
On September 19, Microsoft announced that it was increasing its dividend by 10.7% for the next payment date of December 9. This extends the company’s dividend growth streak to 20 years, bringing Microsoft one year closer to achieving dividend aristocrat status. The dividend has a compound annual growth rate of 13.1% from 2011 to 2020, so the most recent increase is within the range of the long-term average.
Microsoft’s annualized dividend is $ 2.48. Stocks are returning 0.8% at the current price, which is far lower than the average 2.5% return on the stock over the past decade, according to Value Line.
With the stock price currently at $ 303, Microsoft has a forward price-to-earnings ratio of 34.5. Although the multiple has increased in recent years, the 10-year average price-to-earnings ratio is just above 20.
Microsoft has announced a further double-digit dividend increase along with a further $ 60 billion buyback, or 2.7% of current market capitalization. The return could be extremely low compared to its historical average, but shareholders will likely benefit from the share price appreciation that has occurred in recent years. Microsoft has really taken off over the past few years following the advancement in the cloud industry, which has a huge total addressable market. With a leading position in this area, Microsoft in my opinion deserves a premium valuation. That said, Microsoft is already my biggest personal stake by far, so my investment capital will be concentrated elsewhere for now. For those not yet in the name, a withdrawal would be a much better entry point.
Philip Morris International Inc. (PM, Financial) sells tobacco products, including the Marlboro brand, in countries outside of its home territory in the United States. The company was split from the parent company Altria Group (MO, Financial) in 2008. Philip Morris has a market cap of $ 160 billion and generated nearly $ 29 billion in revenue in its most recent fiscal year.
Philip Morris increased its dividend by 4.2% for the October 14 payment date, giving the company a 14-year dividend growth streak. Over the past decade, the dividend has a CAGR of 5.3%, so the most recent increase is just below the long-term average, but nearly double that of last year.
The new annualized dividend is $ 5.00. With analysts forecasting earnings per share of $ 6.09 for 2021, that implies a payout ratio of 82%. This is just above the 10-year average payout ratio of 81%. However, Philip Morris has often had a very high payout ratio, so much so that the five-year average payout ratio is 90%. The projected payout ratio, if achieved, would be the lowest since 2014.
Philip Morris stock currently has a 4.9% return, nearly four times the average return of the S&P 500 Index. It is also above the 4.7% return that the stock has achieved. on average since 2011.
The shares are trading near $ 103 as of Thursday’s close. According to analysts’ estimates, Philip Morris has a futures price-to-earnings ratio of 16.9. Over the past 10 years, the stock has traded with an average price-to-earnings ratio of 17.7, so Philip Morris appears to be at least slightly undervalued on a historical basis.
Philip Morris’ most recent increase was below its long-term average, but was better than the 2.6% increase a year earlier. The company is also a leader in its industry and enjoys slightly weaker regulation in the regions where it operates. The stock is trading at a higher than normal return and a lower than normal valuation. For investors looking for income with possible multiple expansion, Philip Morris could be a solid investment.
Texas Instruments Incorporated (TXN, Financial) is a world leader in the manufacture of semiconductors and electronic products. The company provides semiconductors that can be used in a variety of ways, including sound and temperature measurement as well as for specific tasks and applications. Texas Instruments has a market capitalization close to $ 182 billion and had sales of $ 14.5 billion in 2020.
Texas Instruments increased its dividend by 12.7% for the November 15 payment date. The company has increased its dividend for 18 consecutive years. Shareholders have enjoyed a dividend CAGR of 20.8% over the past decade. The growth rate has slowed a bit recently, but the most recent increase is almost in line with the 13.3% increase from last year.
Following the latest increase, Texas Instruments lost 2.3%. That’s lower than the 10-year average return of 2.5%, but not by much.
The annualized dividend now stands at $ 4.60. Analysts expect Texas Instruments to earn $ 8.01 per share this year, which means the dividend payout ratio is estimated at 57%. The average payout ratio for the past 10 years is 50%, as this ratio has increased in recent years and does not appear to be at an unhealthy level.
Texas Instruments closed the last trading session at $ 197, resulting in a forward price-to-earnings ratio of 24.6. That’s higher than the 10-year average price-to-earnings ratio of 19.7, but a little closer to the average multiple of recent years.
Texas Instruments dividend growth has slowed in the near term as the dividend has grown in size. The higher than usual payout ratio is probably another reason the increase has been below the long-term average. Still, a double-digit increase is solid and the return is not too far from its historical average. Stocks are more expensive than usual, so I would wait for Texas Instruments to pull back before buying.