Three Stocks With 10-Years of Increased Dividends

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

We invest for two kinds of return: dividends and capital appreciation. With different goals and priorities, some might prefer dividends, and others might prefer capital gains. Retired people might opt for dividend stocks because they provide a constant income stream during the investment lifetime, so that they can have income to cover their daily living expenses. However, in order to have a reliable income stream, the dividend should be sustainable. It means the company should have a strong balance sheet, and a history of paying dividends. In addition, the payout ratio should not be too high. In the search for those investment opportunities, I have run a screen with 5 different criteria: (1) 10 years of continuously increasing dividends, (2) debt/equity lower than 50%, (3) Yield higher than 1%, (4) payout ratio less than 30%, and (5) return on invested capital higher than 20%. Here are the 3 top results:

Nu Skin Enterprise (NYSE: NUS) is one of the leading global direct selling corporations in 52 countries globally. Its main product is the high-end anti-aging and nutritional supplements with two main brands, Pharmanex and Nu Skin, with 45% and 55% revenue contribution respectively. In 2011, the majority of Nu Skin revenue was generated in North Asia (43%) and Greater China (20%). Nu Skin has a long history of paying increasing dividends for more than 10 years. Currently, it is paying 20 cents quarterly. The dividend yield is 1.75%. It only pays 23% of earnings to shareholders. In the past 12 months, its return on invested capital was nearly 29.5%. Nu Skin has a quite strong liquid balance sheet. Its D/E is around 30%, with $550 million in shareholders’ equity, $183 million in long-term debt and $338 million in cash. It is currently trading at $45.61 per share; its total market capitalization is $2.68 billion. The market is valuing Nu Skin at 13.8x P/E and 4.9x P/B.

Cummins (NYSE: CMI) is a business with a long history of manufacturing diesel engines. It is considered as a leader in making diesel and natural gas engines to more deliver in more than 190 territories via the network of 600 distributor locations and 6,500 dealer locations. The majority of sales come from the domestic market in the US, accounting for around 41% of total sales in 2011. Cummins has an increasing and sustainable dividend paying history. In 2002, it paid $0.30 per share in annual dividend. Last year, the dividend increased to $1.33 per share. The current payout ratio is only 17.7%, with the yield of more than 2%. The trailing twelve-month return on invested capital was 27.6%. It has a debt/equity ratio of more than 10%. As of September, it has nearly $6.5 billion in stockholders’ equity, $1.3 billion in cash, and only 670 million in long-term debt. The stock is trading at $97.10 per share; the total market capitalization is $18.46 billion. The market is valuing Cummins at 10.1x P/E and 2.8x P/B.

ExxonMobil Corporation (NYSE: XOM) is the global leading oil/gas and energy corporation. It used to be the largest publicly traded company in the world. It was ranked #1 in Fortune 500 in May 2012 and #2 in FT Global 500 in July 2012. As of fiscal 2011, it had around 24.9 billion BOE. The company has paid increasing dividends for the last 10 years. It is currently paying 57 cents quarterly dividend. The payout ratio is only 22%, with the yield of 2.61%. Over the previous 12 months, the return on invested capital is 25.2%. For the balance sheet, it has $166.7 billion in stockholders’ equity, $13 billion in cash and only $8.9 billion in long-term debt. It is currently trading at $87.21 per share; the market capitalization is $397.62 billion. The market is valuing XOM at 9.2x P/E and 2.4x P/B.

My Foolish Take

With a history of paying increasing and continuous dividend, strong balance sheet, low payout ratio and high return on invested capital, all three companies mentioned above should be considered to be in long term portfolios of both income and value investors.  


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Cummins and ExxonMobil. Motley Fool newsletter services recommend Cummins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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