Large Caps With High Dividend Per Share Growth

Published Wed, 30 Sep 2015 18:15 CET by

There are several sectors that pay good dividends as reflected on their dividend yields. Energy, utilities and telecoms are on the lead, with a 15.3% average dividend yield for the oil drilling (energy) sector. Utilities average a dividend yield of 4.8% and telecoms have an average of 4.8% (as of February 2015). Considering that the S&P 500 yields 1.99% on average, these yields are attractive and could entice you to invest in the companies trading in these sectors. However, selecting a dividend-growth company requires looking further than the dividend yield. It should include factors like the sector stability and the dividend payout ratio. This is what dividend investing is about.
The article discusses three large-cap companies trading in the industrials, financials and energy sectors. These stocks not only have high dividend yields, but they also have the highest growth in annual Dividend Per Share (DPS) for a period of 3-years and 5-years. This verifies that DPS growth is more important that the dividend yield per se. Also, although all three stocks have underperformed versus the NYSE over the past year, investor confidence remains at a sustainable level because they are dividend-growth companies.

Cummins, Invesco and Williams Companies versus NYSE Index 1 Year Stock Performance Graph
Cummins (NYSE: CMI) is a Columbus-based company engaging in the design, manufacture, distribution and service of diesel and natural gas engines and related products. The global power leader distributes its products through 600 original equipment manufacturers (OEMs) and independent distributors in the U.S and 7,200 dealers worldwide. In terms of DPS growth, Cummins’ 3-year growth is 28.5% and 5-year growth is 31.6%. During the same period, S&P 500 has an average growth of 14.5% and 13.2%, respectively, so the company has significantly outperformed the index as well. In Q2 2015, Cummins increased its dividend by 25% compared to Q1 ($0.975 from $0.78), thus raising its quarter dividend by 680% since the beginning of 2008 ($0.975 from $0.125). In addition, the company’s current payout ratio of 41% is due to an EPS of $9.52, whereas its average 5-year payout ratio 23.86%. Analysts forecast an average EPS of $11.85 through 2018 and an average annual earnings growth of 10.97% through 2019. Cummins is clearly among the companies that deliver shareholder value through dividends and share repurchase.

Invesco (NYSE: IVZ) is another company worth looking at for its dividend consistency and growth. The Atlanta-based independent global investment management company has a DPS growth of 26.9% in 3 years and 19.1% in 5 years, outperforming S&P 500 during the same period. Also, the company’s 5-year average payout ratio is 42%, in line with its current payout ratio of 45%. Although, in Q2 2015, Invesco faced the challenges of uncertainty in the global markets, mainly due to the situations in Greece and in China, it has also seen a turnaround in the European retail market, which led to more than $1 billion of net inflows. Analysts forecast an average EPS of $2.93 through 2017 (current EPS is $2.41) and an average annual earnings growth of 11.65% for the next five years. Given the company’s focus on organic growth, with a plan to achieve 3% to 5% in 2015, Invesco is a safe investment for dividend investors.

Name Price ($) Market Cap ($ b) P/E D/E DPS Growth 3 years DPS Growth 5 years Beta Payout Ratio
Cummings 106.84 19.36 11.47 0.20 28.5% 31.6% 1.63 41%
Invesco 30.92 13.25 12.81 0.19 26.9% 19.1% 1.63 45%
Williams 36.56 27.41 13.60 2.68 36.2% 34.8% 0.77 94%

Williams Companies (NYSE: WMB) is an energy infrastructure company, located in Tulsa, OK, that owns and operates midstream gathering and processing assets, and interstate natural gas pipelines across the U.S. Williams’ 3-year DPS growth is 36.2% and 5-year growth is 34.8%, suggesting that the company not only delivers dividends, but it also increases them. In addition, its 5-year payout ratio 94.44% is in line with the current payout ratio of 94%, indicating a stable company that focuses on driving cash flow growth. Williams plans to deliver an annualized dividend of $2.85 in 2016, increased by 11.3%, while it seeks a 10% to 15% annual dividend growth through 2020. Clearly, the company has the potential to anticipate the commodity price headwinds and deliver value to its shareholders.

Stock name Dividend Yield
Invesco 7.28
Williams 6.12
Cummins 3.20

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