NEW YORK (
) -- In my initial column this month, I explored the
wonders of dividends
. Typically greeted warmly by investors, they can be far more meaningful than simply as a source of income for shareholders. Dividends can also be an indicator of a company's overall health. Companies that continue to raise their dividends year in and year out can be sending a signal that management is confident in the company's prospects and confident enough to up the ante of the amount they return to shareholders on a fairly regular basis.
Given the shellacking companies often take if they have to reduce or eliminate their dividend, this is not something that can be faked to placate shareholders. A dividend must be paid in cash, and any management team that knowingly raises the dividend beyond what the company can sustain would be doing so at their peril. In a sense, this represents a built-in system of checks and balances.
| Below a $5 billion market cap there are plenty of companies growing, stable and paying out dividends.
In my initial column, I focused on identifying larger companies with growing dividends and the wherewithal to continue that into the future. Here I lower the bar in terms of market capitalization to an upper limit of $5 billion, highlighting some smaller dividend growers available to investors. I've also set a lower limit of $500 million; while there may be some opportunities in names below that level, those may be too small for some investors.
All other criteria remain the same as in my initial search:
- Dividend payout ratio below 50% for the past two years
- Dividends have been raised for at least the past seven years
- Dividend growth rate at least 10% for the past five years
- Long-term debt-to-equity ratios below 50%
- U.S. companies only
In all, 30 companies made the grade, a good number considering the stringent criteria. But the previous search featured some very familiar companies. This one features some that may not be as well-known to investors.
Just one retailer made the cut,
, which has increased its quarterly dividend from 0.05 cents in 2006 to 18 cents this year. That's an increase of 360%, yet the payout ratio is still just over 23%. Investment data and research provider
is the largest company on the list. It has increased its quarterly dividend more than fivefold since 2005 and still has me shaking my head -- earlier in my career, when I was responsible for
's equity data department, Factset was making quite a splash, and has quietly grown itself into a formidable nearly $5 billion market cap company.
At the very bottom of the list in terms of size you'll find an interesting name, $540 million market cap company
. This company, which makes water meters and related products, has more than doubled its dividend in the past seven years. During that time, the stock is up more than 300%.
Other companies meeting the criteria include property and casualty insurers
Amtrust Financial Services
Infinity Property and Casualty
American Financial Group
, as well as life insurance companies
American Equity Investment Life
. There are plenty of regional banks, including
Bank of the Ozarks
Other names include publisher
John Wiley & Sons
, metal fabrication name
, farm products name
, trucking companies
, auto repair name
Monro Muffler Brake
, chemical companies
and one of my former employers,
Outside the five insurance companies and three banks, this is a fairly diverse group of businesses that have all continued to increase their payouts to shareholders.