Three Dividend Growth Stocks Raising Their Dividend

Nordson Corporation (NDSN) is an industrial conglomerate tracing its history to 1954. The company has three operating segments: Adhesive Dispensing Systems, Advanced Technology Systems, and Industrial Coating Systems. The company manufactures and sells precision pumps, valves, dispensers, applicators, filters, pelletizers, and other equipment for industrial, medical, electronics, packaging, and other customers. Nordson operates globally with roughly two-thirds of revenue coming from international sales. In 2018, Nordson had about $2.3B in revenue. Nordson is likely not that well known to most dividend growth investors, but it is one of only 28 Dividend Kings in 2019. The company has raised the quarterly dividend ~8.6% to $0.38 per share. This represents the 56thstraight increase. Nordson ranked highly in my July 2019 ranking of the Dividend Kings. This was due to its trailing 5-year EPS growth, 5-year dividend growth, and 10-year dividend growth. In addition, the dividend is reasonably safe with a payout ratio of only about 25% and a low debt-to-equity ratio of approximately 0.94. Considerations include a new CEO as of August 1st, 2019, exposure to slowing global economies including Europe and Asia Pacific, and foreign exchange fluctuations. On a negative note, Nordson is a volatile stock with 5-year beta of 1.22. It is also currently overvalued relative to the broader market trading at a P/E multiple of ~23.

Avnet, Inc. (AVT) is a distributor of electronic components such as interconnects and capacitors, tools and kits. The company’s customers include original equipment manufacturers, electronic manufacturing services, and original design manufacturers. The company has two operating segments: Electronic Components and Premier Farnell. Its customers are in the automotive, medical, defense, and aerospace markets. Premier Farnell serves entrepreneurs, startups and the maker community. Avnet increased the quarterly dividend by $0.01 per share to $0.21. This is the fifth consecutive increase giving a 5-year dividend growth rate of ~21%. The current yield is about 2.0% and the payout ratio is a safe 19.6%. Avnet is a mid-cap stock of $4.2B. It is currently trading at forward P/E ratio of 12.3 based on estimated 2019 EPS of $3.30. This is well below the broader market average and also the 5-year historical average of 13.3. One consideration is that Avnet’s customers are often in cyclical industries that could impact the top and bottom lines. With that said, Avnet may be of interest to some dividend growth investors and should be researched further.

MGE Energy, Inc. (MGEE) is public utility holding company that operates primarily in Wisconsin and Iowa. MGE Energy traces its history back to 1855. The company has five operating segments: Regulated Electric Utility, Regulated Gas Utility, Nonregulated Energy, Transmission Investments, and All Other. MGE Energy generates, purchases, and distributes electricity. MGE Energy also transports and distributes natural gas. The company raised the regular quarterly dividend about 4.4% to $0.3225 per share. This is the 44 straight increase and thus the company is one of only about 129 Dividend Champions. MGE Energy has slowly increased the bottom lines over the past 10-years from $51M to $85.42M supporting a growing dividend albeit at a low rate of only 3.3%. The stock is currently very overvalued trading at P/E multiple of about 31. This is much higher than the broader market average and the 5-year historical average of about 24. MGE Energy has some negatives in that the yield is low at 1.85% and the payout ratio is high at 75%, greater than my threshold of 65%. Dividend growth investors may want to wait for a better entry point for this stock.

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