5 International Industrials Demonstrating Consistent Dividend Growth
Published Mon, 09 Sep 2013 09:00 CET by DividendYields.orgDividend growth is one of the major driving forces behind the real stock market appreciation over time. For income investors, it is also relevant for preserving the long-term purchasing power, as increases in dividend payouts help offset inflation. There are many companies increasing their dividends from time to time; however, some do it consistently year after year, reflecting their strong earnings power and cash flow generation capacity. In the universe of international dividend payers, there is a select group of industrial American Depositary Receipts, Global Depositary Receipts, and non-US common or ordinary stocks that have demonstrated consistency in dividend growth. As the industrial sector may receive an impetus for growth from the reaccelerating global economies, industrial sector stocks with consistent dividend growth could become increasingly appealing to dividend-growth investors.
Based on the Nasdaq International Dividend Achievers Index, five global industrial sector equities stand out. The table below features the main profiles and dividend characteristics of those five equities. The index, per se, is designed to identify an international group of companies that have increased their aggregate annual regular dividend payments consistently over the course of the last five calendar or fiscal years. (The Index is reconstituted annually in January and rebalanced quarterly in January, April, July and October.) In line with the index methodology, all following equities have increased their aggregate annual dividends for at least five consecutive years.
Among the featured international industrials, Textainer Group Holdings (NYSE: TGH), the world’s largest lessor of intermodal containers based on fleet size, offers the highest dividend yield. It has raised or maintained its quarterly dividend for six consecutive years, increasing its quarterly payout by 135% since the company’s 2007 Initial Public Offering (IPO). Canadian Pacific Railway (NYSE: CP)(TSX: CP), a Canadian transcontinental railway services company, has the lowest dividend yield; however, its payout ratio is also the smallest in the group, suggesting ample room for sustained dividend growth in the future. On the other hand, in terms of performance, Pentair (NYSE: PNR)(FRA: PAI), a Switzerland-based manufacturer of water filters, pump systems, and pool accessories, has seen the best total return year-to-date.
Textainer Group Holdings has been profitable for 27 consecutive years and has paid dividends for 24 years now. Its long-term leases result in predictable revenues and cash flow streams, which provides security to dividend payments. The company has a high operating margin, and has demonstrated a robust revenue CAGR of 17% and an EBITDA CAGR of 24% between 2008 and 2012. It has also realized an annual growth in revenue earning assets of 23% and an equally-high average return on equity. The company’s operational performance is solid amid a strong demand for leased containers and a near record-high average lease utilization.
Ritchie Bros Auctioneers (NYSE: RBA)(TSX: RBA), a Canada-based company and the world’s largest industrial equipment auctioneer, pays a respectable dividend yield and boasts a prospect for capital appreciation. The company has been increasing its dividend since 2003. Last month, RBA beat earnings estimates for the second-quarter earnings; however, it trimmed its financial outlook for the year due to a weak global economic environment, including in the United States, where half of the company’s business takes place. Still, over the long term, RBA remains committed to achieving an average annual growth in EPS of at least 15%, a return on invested capital of at least 15%, and an EBITDA margin of at least 40%.
Pentair merged with Tyco International’s (NYSE: TYC) Flow Control business last year, with Tyco assuming a majority control over the combined company. Pentair has been an avid dividend payer for years, boasting some 37 consecutive years of dividend increases. In addition to giving it a status of a Nasdaq International Dividend Achiever, this long, uninterrupted streak of dividend growth also makes Pentair Ltd. one of the S&P Dividend Achievers. In 2013, the company projects a 4% revenue growth, a 20% increase in operating income, and a 27% growth in EPS. For the medium term, Pentair Ltd. remains committed to achieving a 5% CAGR in revenues, a 19% CAGR in operating income, and above 25% CAGR in EPS. While the company’s relatively low dividend yield is not particularly appealing, the company’s record of dividend increases, especially given Pentair’s still-low payout ratio, remains attractive for dividend growth investors.
The list is rounded by two Canadian railway service companies, namely Canadian National Railway (NYSE: CNI)(TSX: CNR), which operates the largest rail network in North America, and Canadian Pacific Railway. These two companies represent the industry in which legendary investor Warren Buffett sees long-term prosperity amid a return to growth in the United States. Both railway operators are likely to benefit from regulatory hurdles that are delaying constructions of pipelines for energy resource transportation. Transport of crude oil by rail is expected to increase significantly in the medium term, which is a reason why Canadian Pacific forecasts its crude carloads to increase by a factor of 2-3 by 2015 so as to respond to a flourishing demand for oil. Another impetus to growth is the recovering housing market in the United States, which is supporting shipments of lumber across the border. In terms of dividend growth, both stocks feature low dividend payout ratios, indicating their capacity for long-term dividend growth in the future.
As shown above, several international industrial sector equities have strong characteristics of consistent dividend growth. Therefore, they may be appealing to long-term income investors focused on dividend growth in an industry that has a potential to rebound with a reaccelerating economy.
|Stock name||Dividend Yield|
|Ritchie Brothers Auctioneers||2.08|
|Ritchie Brothers Auctioneers||1.94|
|Canadian National Railway||1.73|
|Canadian Pacific Railway||1.07|
|Canadian Pacific Railway||0.74|