Sunday, July 12, 2015

Overdue Dividend Increases

David Fish maintains one of the best resources for dividend growth investors, the so-called CCC list. The list is updated monthly and contains all U.S.-listed stocks that have increased their dividends for at least 5 consecutive years. The acronym CCC stands for the 3 categories of stocks in the list, divided based on the number of consecutive years of increases: Dividend Champions (25 or more years), Dividend Contenders (10-24 years) and Dividend Challengers (5-9 years).

In compiling the CCC list, Fish gets a chance to see which companies are approaching the anniversaries of their previous dividend increase announcements. Since many companies raise their dividends about the same time every year, he is alerted when dividend increases are not announced as expected.

In many cases, companies announce an increase "just in time" and avoid breaking the streak of dividend increases. In some cases, though, companies fail to announce dividend increases, essentially freezing their payments at the existing amount.

Note that companies do not have to announce dividend increases every year to maintain a streak, nor do they have to increase their dividends annually to retain a streak. Fish compares calendar year totals and, specifically, the total amount paid in consecutive calendar years. Therefore, a company's dividend streak will end only if it pays the same total dividend in back-to-back years.

Following is an example of Microsoft Corp's (NASDAQ:MSFT) recent dividend history. The company pays the same quarterly dividend in every quarter of its fiscal year, which is not aligned with the calendar year:
Even if MSFT pays the same dividend in December 2015 as it did in December 2014 (31¢), the company's streak of dividend increases would not end. In fact, as long as MSFT pays more than 31¢ in at least one quarter in 2016 (assuming payments of 31¢ in the other quarters), the company will retain its streak.

Note that Fish converts dividends paid in foreign currency to dollar equivalents before making comparisons. Therefore, dividend increases paid in foreign currency must also increase in dollar terms, otherwise the stock will be lose its dividend streak status!

One of DivGro's holdings, Nippon Telegraph & Telephone Corp (NYSE:NTT), is an example of a stock that no longer appears in the CCC list even though it continues to increase its dividends annually (in yen).

Source: NTT website

In a recent Seeking Alpha article, David Fish identifies 18 companies that soon could lose their dividend streak status and 21 ADR (American Depository Receipt) stocks that could fall victim to the strong dollar, despite increasing their dividends in the foreign currency.

The following DivGro holding appears in Fish's 2015 death watch list, which contain stocks that must pay an increased dividend in 2015 to retain dividend streak status:
DivGro holdings whose streak will end without any increase by the end of 2016 include Chevron Corp (NYSE:CVX) and Starwood Property Trust Inc (NYSE:STWD):
Finally, a few stocks could have their dividend streaks disrupted due to merger or spin-off activity. DivGro holding Baxter International Inc (NYSE:BAX) just spun off Baxalta (NYSE:BXLT) and PartnerRe Limited (NYSE:PRE) is merging with Axis Capital Holdings Limited (NYSE:AXS). At this point, it is uncertain whether BAX and PRE will retain their dividend streaks.

Do you own any stocks in David Fish's 2015 and 2016 death watch lists? Do you sell stocks that fail to pay increased dividends in more than 2 consecutive years? Please comment below!

14 comments :

  1. Own CVX and am happy to hold the stock even if they dont raise it for the next few quarters.

    R2R

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    Replies
    1. Me too, and I agree with you -- though I can't imagine CVX would not raise their dividend before year's end. We shall see!

      Cheers
      FerdiS

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  2. Good article, I don't own any on the list of 18 that could end in 2015. One is on my watch list, and high (ORIT), but I was (and have been) shooting for something lower before entering. For the past three years or so ORIT has given a special dividend that raises it total yield to +6%. I have no idea if they will continue, but they seem to be solid fundamentally.

    I also don't own any on the list that will end in 2016. CVX is high on my watch list, but I have been loading up on RDS.B and COP, and I have a smaller position with BP. I am like R2R above in that I bought these knowing the tough times in oil and a perfectly happy to hold if they freeze. A cut would get me thinking, but the yields and the companies are such that the yield is fine where it is (even if frozen) and these companies aren't going anywhere.

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    1. Thanks, Mike! ORIT looks interesting, though it is flying under my radar at the moment. Thanks for mentioning the stock -- I'll take a look.

      I won't sell CVX if it fails to raise -- it is a solid company and as you say, it isn't going away! I don't own shares of RDS.B or BP in DivGro, but I do own shares of COP. BTW, COP is not yet beyond its 1 year anniversary...

      Cheers
      FerdiS

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    2. I hear you on CVX. ORIT is a nice little bank. I wish I would have pulled the trigger at mid-$14, I have been watching it a long time now. I said, just wait to it goes just below $14 and I will buy! LOL No such luck and now its trending to $16.

      And BTW: I think their streak is already dead. Looks to me like they have not increased the divi for a few years. It is been $0.175 or $.70 annually for a while. However, the last three years they gave a $0.40, $0.25, and $0.25 special dividend.

      The streak already being sort of dead, plus the lack of LONG-term history is part of the reason I didn't pull the trigger. I like history and I need to build that stable up first. As my portfolio grows, I will be able to add more speculative company's like ORIT. Plus, I seek income first, so the 4.3% bank stock yield gets me excited. If they keep doing the special dividends (generally in Dec) then that super charges the yield.

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    3. I'm not sure if special dividends count, but I don't think so. David Fish is pretty adamant about using total dividends paid in a calendar year as his metric. If two consecutive years have the same total dividend amount paid out, he deletes the stock from the CCC list.

      The special dividends would boost your income, but its unreliable. The company can seize paying them any time. I think it is weird to pay special dividends, yet not raise the regular dividend (even by a small amount). Its like the company doesn't have confidence in its ability to improve earnings in the long run; rather, it takes a wait-and-see approach.

      Cheers
      FerdiS

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    4. Yeah, that is what I thought too--(that special dividends didn't count as the annual increase for the CCC) so I surprised to see them on the list. I thought the streak was already dead. According to the ORIT investor page the dividend has been .0175 since May 2013, that is already 9 quarters, or more than 2 years.

      So you are right, I wouldn't buy it for the special dividend, you wouldn't really need too, as the yield without it is sufficient for most income investors. However, I have never bought a company that hasn't had an increase streak, so that is what sort of kept me out on this. Still, I watch. I am especially curious if they continue to make the special dividend, then the yield at +6% might be enough to buy even knowing their isn't increases.

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    5. Sure the yield is attractive, but, like you, I want evidence of a commitment to increase dividends. At least 5 years of dividend growth is my norm. I'm pretty firm about that criterium for DivGro!

      Thanks for sharing the additional information about ORIT. Hopefully, that's useful information for other readers, too. Take care!

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  3. Hi Ferdi,

    This is good information you've pulled out of the sheet.
    I'm glad I bought CVX already, because it could slip away from my attention if it gets deleted from the list. Wouldn't want that to happen!

    MFST and TGH are on my wishlist. TGH has nice yield and the stock has been on decline for a while, but this might indicate a fundamental problem. I definitely have to do more research on this, before pulling the trigger.

    Thanks for the headsup!

    Best wishes, DfS

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    1. Hi DfS -- thanks for commenting. I agree with you wholeheartedly. We don't want CVX to disappear from view. For some reason, I don't believe CVX would freeze its dividend. But we shall see if I'm right...

      It would be great to hear what you find out about TGH -- always good to get someone else's opinion. MSFT is solid, so look for a good entry point there!

      Best of luck, FerdiS

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  4. Strong blue chip companies are always awesome to just hold and forget. I would not imagine selling some of the companies that I own. Probably only time of selling is when there is even more attractive companies at awesome prices are around and I have no capital to invest in.

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    1. Agreed, BeSmartRich! I realize I have some less popular and more risky stocks in DivGro, but there are many solid dividend growers, too. At some point in the near future, I'll do a review of all my holdings to see if some weeding would need to be done.

      Take care and thanks for commenting!
      FerdiS

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  5. I own CVX and DEO. Hoping that DEO will put a raise through, but we will see.

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    Replies
    1. Hi there -- as an ADR, DEO has the added challenge of having to raise its dividend in dollar terms. I notice the first dividend payment this year was down 3¢. So the the second dividend payment would have to make that up and a little more. Good luck!

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