3 Stocks With Double-Digit Dividend Increases

Along with income, dividend growth investors are often looking for solid dividend growth. A higher than usual dividend increase could mean that the company believes its forward prospects are promising.

In this article, we will examine three companies that recently provided a double-digit dividend increase that surpassed their respective compound annual growth rates (CAGR) for the last decade.

Aflac

Aflac Incorporated (

AFL, Financial) is the largest underwriter of supplemental cancer insurance in the world. The company also sells accident, health, life and long-term care policies in both Japan and the U.S. Aflac has a market capitalization approaching $37 billion and generated revenue of $22 billion in 2020.

Aflac announced a 21.2% increase for the March 1, 2022 dividend payment date. This comes on the heels of a nearly 18% increase last year. Aflac has now raised its dividend for 40 consecutive years, qualifying the company as a Dividend Aristocrat. The dividend has a CAGR of just under 7% since 2011, making the most recent dividend increase far more generous than usual.

With a new annualized dividend of $1.60, shares yield 2.9% on a forward basis. According to Value Line, Aflac has an average yield of 2.5% over the last decade, so shares are yielding more than they usually do. The forward yield is also more than twice the 1.26% average yield for the S&P 500 index.

According to Wall Street analysts, Aflac is expected to earn $5.90 per share in 2021, resulting in a projected dividend payout ratio of just 27%. This is nearly in-line with the 10-year average payout ratio of 25%.

Shares of the company closed the most recent trading session at $55.44. Using analysts’ estimates, Aflac has a forward price-earnings ratio of 9.4. The stock has averaged a multiple of just over 10 times earnings since 2011.

The GuruFocus Value chart shows shares are trading close to their intrinsic value.

With a GF Value of $54.35, Aflac has a price-to-GF-Value ratio of 1.02. The stock is rated as fairly valued by GuruFocus.

Aflac is the clear leader in its area of the insurance market, which has enabled the company to raise its dividend for four consecutive decades. The stock yields above its long-term average and the expected payout ratio is very low even after back-to-back high double-digit increases. Shares are also trading below the decade-long average multiple. Given this, Aflac could be enticing for a more conservative investor.

Automatic Data Processing

Automatic Data Processing, Inc. (

ADP, Financial) is the largest provider of business outsourcing solutions in the U.S. The company provides human resourcing solutions, payroll and other administrative services to more than 920,000 customers. Automatic Data Processing is valued at just over $100 billion and has annual revenues of $15 billion.

Automatic Data Processing increased its dividend 11.8% for the upcoming Jan. 1, 2022 payment date, extending the company’s dividend growth streak to 47 years. Automatic Data Processing is closing in on joining the exclusive Dividend Kings index, which are those companies with at least 50 consecutive years of dividend growth. The dividend has a 10-year CAGR of 10.2%.

Automatic Data Processing’s annualized dividend now totals $4.16. As a result, the stock’s new yield is 1.7%. This is below the 10-year average yield of 2.4%, but still superior to the average yield for the market index.

The company is projected to earn $6.77 in fiscal year 2022, meaning the implied payout ratio is 61%. The average payout ratio over the last 10 years is 60%.

With shares trading at $237.91, the stock has a forward price-earnings ratio of 35.1. This is in excess of the 10-year average price-earnings ratio of 26.2.

The stock also appears to be overvalued relative to its GuruFocus Value chart.

Automatic Data Processing has a GF Value of $186.35. Using the current price, shares have a price-to-GF-Value ratio of 1.28. Shares would have to decline nearly 22% to reach the GF Value. The stock receives a rating of modestly overvalued from GuruFocus.

Automatic Data Processing has a massive client pool that it can leverage to drive growth. With this comes a high valuation, something shareholders have been accustomed to over the last decade. Automatic Data Processing also has an impressive dividend growth streak. That said, the stock is well above its average multiple and its GF value. Investors would likely find the stock more attractive on a pullback.

Snap-On

Snap-On Incorporated (

SNA, Financial) manufactures a wide variety of instruments, including tools, diagnostics equipment, systems solutions and software. The 100-year-old company’s product lines include hand and power tools, tool storage, shop equipment and information and management systems. Snap-On generates $1.6 billion of annual revenues and is valued at $11.6 billion.

Snap-On increased its dividend 15.4% for the Dec. 10, 2021 distribution date. The company’s dividend growth streak now numbers 12 years. The dividend has a CAGR of just under 15% since 2011. Snap-On has been very aggressive with regards to its dividend growth over the last decade and the most recent raise continues this trend.

The company’s annualized dividend is $5.68, giving the stock a new yield of 2.6%. This is double that of the average yield for the S&P 500 index as well as 60 basis points above the stock’s long-term average yield of 2%.

Analysts project that Snap-On will earn $14.43 in 2021, equating to a payout ratio of 39%. This is above the 10-year average payout ratio of 29%, but not to the point where the dividend appears to be in danger of being cut. And with the most recent raise, it doesn’t appear that management is done growing the dividend at a high rate.

Snap-On recently traded at $215.65. Using estimates for the year, the stock has a forward price-earnings ratio of 14.9. This is almost identical to the payout ratio of 15.1 that the stock has averaged since 2011.

On the other hand, shares are trading above their fair value based on the GuruFocus Value chart.

Snap-On has a GF Value of $187.05, giving the stock a price-to-GF-Value ratio of 1.15. Snap-On would have to retreat a little more than 13% to reach the GF Value. The stock is rated modestly overvalued by GuruFocus.

Snap-On is a well-known band within its industry, making it the go to name for many of its customers. This has allowed for rather consistent and high dividend growth over the last decade. Shares yield a decent amount and the payout ratio is very reasonable. The stock’s valuation nearly matches its long-term trend, but look pricey compared to the GF Value. An investor looking for income and dividend growth might do well with a name like Snap-On, though they may choose to wait for a slightly better price.

Final thoughts

Aflac, Automatic Data Processing and Snap-On all recently raised their dividends by a higher than usual amount. All three names have at least 12 years of dividend growth, with Aflac and Automatic Data Processing able to count their growth streaks in the decades.

The recent increases suggest that the management teams for these three companies believe that the best days for their respective companies are in the future, affording each the opportunity to reward shareholders with a generous dividend increase.