28 'Overdue' Dividend Increases: Reason to Worry? - Seeking Alpha

28 'Overdue' Dividend Increases: Reason to Worry? - Seeking Alpha

In compiling the Dividend Champions list (found here) I get to see which companies are nearing the anniversaries of their previous dividend increases. Most of these firms raise their payout about the same time every year, but some companies go longer before boosting their dividends, and this can raise concerns about their streaks of increases.

New Series

This is the first in what I hope will be a monthly series listing companies whose latest dividend increase might be considered “overdue.” In other words, these companies have gone more than a year since their previous increase, something that might be considered a sign that the dividend (or at least the streak of increases) is in danger. (Note that the dates for these companies appears in Red in the Dividend Champions spreadsheet and PDF.)

Of course, some firms regularly go more than a year between increases, so this listing is only an “early warning” sign that some of the companies listed may warrant concern. I hope that this series will help to augment David Van Knapp's new series about possible “Dividends in Danger,” and, as we get closer to year-end, the listing will act as a dividend streak “death watch,” since it will include companies that will be deleted if they fail to increase the dividend in 2011, making the payout unchanged from that of 2010.

Dividend Champions (25 or more years):

		No.	3/31		%	Pay	Payout	TTM
Company	Symbol	Yrs	Price	Yield	Inc.	Date	%Ratio	P/E	*
American States Water	AWR	56	35.86	2.90	4.00	12/1/09	58.76	20.26	3
Gorman-Rupp Company	GRC	37	39.39	1.07	5.00	12/10/09	27.10	25.41	5
United Bankshares Inc.	UBSI	37	26.52	4.52	3.45	1/4/10	72.73	16.07	2
Investors Real Estate Trust	IRET	39	9.50	7.22	0.29	1/15/10	762.22	105.56	0
CenturyLink Inc.	CTL	37	41.55	6.98	3.57	3/22/10	92.65	13.27	1

Dividend Contenders (10-24 years):

		No.	3/31		%	Pay	Payout	TTM
Company	Symbol	Yrs	Price	Yield	Inc.	Date	%Ratio	P/E	*
Hudson City Bancorp	HCBK	12	9.68	6.20	7.14	5/30/09	55.05	8.88	1
Harleysville Savings	HARL	22	15.10	5.03	5.56	8/19/09	55.88	11.10	2
Consolidated Water Co.	CWCO	13	10.90	2.75	15.38	10/31/09	69.77	25.35	3
Span-America Medical Sys	SPAN	11	15.50	2.58	11.11	12/4/09	27.78	10.76	4
Universal Forest Products	UFPI	16	36.65	1.09	233.33	12/15/09	44.94	41.18	0
Harsco Corp.	HSC	16	35.29	2.32	2.50	2/16/10	1025.00	441.13	0
Meridian Bioscience Inc.	VIVO	19	23.99	3.17	11.76	2/11/10	131.03	41.36	0
Ohio Valley Banc Corp.	OVBC	15	21.12	3.98	5.00	2/10/10	65.63	16.50	0
Westamerica Bancorp	WABC	19	51.37	2.80	2.86	2/13/10	44.86	16.00	1
United Technologies	UTX	16	84.65	2.01	10.39	3/10/10	35.86	17.86	2

Dividend Challengers (5-9 years):

		No.	3/31		%	Pay	Payout	TTM
Company	Symbol	Yrs	Price	Yield	Inc.	Date	%Ratio	P/E	*
Gas Natural Inc.	EGAS	5	11.73	4.60	12.50	4/30/09	36.00	7.82	1
Natural Resource Partners	NRP	8	35.07	6.16	0.93	5/14/09	140.26	22.77	1
Royal Dutch Shell plc A	RDS.A	5	72.86	4.61	5.00	6/10/09	51.22	11.11	0
Royal Dutch Shell plc B	RDS.B	5	73.24	4.59	5.00	6/10/09	51.22	11.16	0
Comfort Systems USA Inc.	FIX	6	14.07	1.42	11.11	9/21/09	51.28	36.08	2
Allied World Assurance Co.	AWH	5	62.69	1.28	11.11	12/10/09	6.01	4.71	1
Energy Transfer Equity LP	ETE	5	45.00	4.80	0.93	2/19/10	251.16	52.33	0
ITT Corp.	ITT	8	60.05	1.67	17.65	4/1/10	23.20	13.93	0
PPL Corp.	PPL	9	25.30	5.53	1.45	4/1/10	64.81	11.71	0
Public Service Enterprise	PEG	7	31.51	4.35	3.01	3/31/10	44.48	10.23	0
Astro-Med Inc.	ALOT	7	7.80	3.59	16.67	4/2/10	100.00	27.86	3
Birner Dental Management	BDMS	7	19.85	4.03	17.65	4/9/10	94.12	23.35	1
PG&E Corp.	PCG	6	44.18	4.12	8.33	4/15/10	64.54	15.67	0

*Number of Years with no increase (1999-2010), except Challengers, which shows Number of Years with no increase since streak began.

There will be other companies that join this listing during the year as they pass the anniversary of their previous increase without hiking the dividend. Since the determinant for inclusion revolves around the actual Dividend Payment, that Date is listed above, along with the Payout Ratio and the Price/Earnings ratio, two key indicators of a company's ability to increase the payout. (Because of space limitations, I'm limiting the columns shown.)

Some Companies at Greater Risk than Others

Not all of these companies are in great danger of seeing their streaks of dividend increases end. For example, Champions American States Water (AWR) and Gorman-Rupp (GRC) have each had several years since 1999 during which they did not increase their dividends, but did so in time to extend their streaks. This resembles the pattern I called “alternators,” which describes companies that increase the payout in the middle of every other year, relying on the fact that the middle year would automatically have a total payout that exceeded that of the previous year and would be less than that of the following year. Another Champion, CenturyLink (CTL), went six quarters between increases the last time, so it appears likely to do so again. And, of course, the boards of directors at companies with very long streaks are keenly aware of them and tend to avoid disappointing their shareholders by letting the streaks end.

Among the Contenders, United Technologies (UTX) tends to go five quarters between increases, so it is likely to declare a boost in the dividend in the coming quarter. Certain types of companies, such as REITs (Real Estate Investment Trusts) and MLPs (Master Limited Partnerships), have a tendency to pay out much more than earnings per share, simply because of their legal structure, so we can't tell much from seemingly high payout ratios or P/Es in such cases. But dividend streaks at companies like Harsco (HSC) and Meridian Bioscience (VIVO) may be at risk, so investors need to determine if their numbers are distorted by an unusual year or one-time event. There has already been much discussion about Hudson City Bancorp (HCBK) and a “likely” dividend cut, but three other banking Contenders seem to have overdue dividend increases, despite seemingly good Payout and P/E ratios.

Dividend Challenger ITT Corp. (ITT) has announced plans to split into three companies, so its dividend streak is probably on hold. But delayed dividend hikes by utilities PG&E, PPL, and Public Service Enterprise Group are a bit puzzling, although they have only just gone to a fifth quarter of the same dividend rates. Overall, the Challengers group may eventually see a greater number of streaks end, simply because these companies have not yet established a “culture” of dividend increases, perhaps because their earnings are less consistent or because more of their resources are devoted to sales growth and other expansion. At least that is what investors need to consider as they seek to own companies that have the long-term characteristics that they seek.

As this is the first effort in this series, comments and suggestions are welcome below.
Disclosure: I am long CTL, UTX.