Are you looking to own quality businesses for a long time while getting rising income from dividends?
TD Bank raised dividend by +10%
TD Bank had a weak fiscal Q1 2019 with adjusted diluted earnings per share essentially remaining unchanged from the same quarter in 2018.
The weakness was largely due to a negative impact on the Wholesale segment from market volatility and lower client activity. The Wholesale segment reported a net loss of $17 million compared to net earnings of $278 million in Q1 2018.
TD Bank’s core Canadian Retail segment reported stable adjusted net income growth of 6% to $1,855 million, while its core U.S. Retail segment reported strong adjusted net income growth of 21% to $1,240 million.
Because the quality bank maintained an industry-low payout ratio and management still expects solid adjusted earnings per share growth of about 7% in fiscal 2019, TD Bank raised the quarterly dividend by 10.4% from $0.67 to $0.74 per share. This year, the bank’s payout ratio will be about 43%, which aligns with its historical range.
The dip in the stock coupled with a strong dividend increase gives long-term investors an opportunity to buy some shares of the quality bank at a relatively high yield of 3.9% compared to TD’s yield history.
TD Dividend Yield (TTM) data by YCharts. TD Bank’s five-year dividend yield history.
CCL Industries raised dividend by +30%
With CCL Industries, investors aren’t looking to get paid good income today. Instead, they’re looking to get paid big dividend income in the future.
For example, if you generated $100 of dividends from the stock in 2012, by this year, you’d receive $425. The dividend has more than quadrupled because CCL Industries has been growing at a rapid pace.
CCL Industries has underperformed recently. Here’s a quick look at its recent results:
|Sales||$4,755.7 million||$5,161.5 million||8.5%|
|Operating income||$737.5 million||$775.7 million||5.2%|
|Net earnings||$474.1 million||$466.8 million||-1.5%|
|EBITDA||$959.2 million||$995.3 million||3.8%|
|Diluted earnings per share||$2.66||$2.61||-1.9%|
Although earnings declined, the business continues to generate healthy cash flow. In 2018, CCL Industries generated operating cash flow of $772.7 million, up 8.6% from 2017. After accounting for capital spending, the company had $419.8 million of free cash flow, down 1.3% from 2017.
CCL Industries also has a decent balance sheet and is awarded an investment-grade S&P credit rating of “BBB”. At the end of 2018, it had $589.1 million of cash and cash equivalents and $2.4 billion of long-term debt.
The company is a solid name to own. It has raised its dividend for 17 consecutive years through economic downturns. The stock just increased its dividend per share by 30.8% recently. Its payout ratio is estimated to be about 23% this year, which aligns with its historical payout range.
We might see further weakness in the stock, but now is not a bad place to nibble some shares.
Even the best businesses can experience slow periods. It’s during these periods of underperformance that investors should consider buying quality businesses, such as TD Bank and CCL Industries.
Consider buying the stocks on meaningful dips, and average into your positions over time to aim for a lower cost basis. Then, sit back and collect the growing dividend income for the long haul.
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Fool contributor Kay Ng owns shares of CCL INDUSTRIES INC., CL. B, NV and The Toronto-Dominion Bank.