The Newest Dividend Growth Challengers: Technology
I’m a dividend growth investor, and I’m always on the look out for fundamentally sound businesses that pay rising dividends each year. In the first of this series, “The Newest Dividend Growth Challengers: Healthcare,” I briefly highlighted a few companies who have raised dividends for five straight years. This time I present a pair of technology businesses that are making their first appearance on David Fish’s CCC list.
Could you imagine buying 3M Company (MMM) or Colgate-Palmolive (CL) five years into their 50+ annual dividend increases? The yield on your initial investment would be huge, and you’d have some amazing capital appreciation to go along with it. There’s a lot of elevated risk involved in these newer dividend payers, because they are often much smaller companies and don’t have the long and secure dividend payout history dividend growth investors seek. Not many businesses can accomplish what MMM and CL have over their business lives, and often these Challengers never even make it to the Contenders tab on the CCC list spreadsheet.
J2 Global is an internet services company with a leading group of premium brands that connect, inform and empower the world. They primarily operate in two business segments: Cloud Services & Digital Media.
J2 Global has achieved incredible successes with how they manage their free capital.
- Dividend growth rate 3 year average: 14.27%
- Dividend Payout ratio: 33%
- 10 year annual revenue growth rate: 17.80%
- Total Return Last 5 years: 207.63%
For those unfamiliar with fast graphs: The current stock price is the black line, and typically when that black line is in the darker green area below the orange line, the stock is undervalued compared to its earnings. When the black line is below the dark blue line, the price is undervalued compared its normal PE ratio. The white line toward the bottom are the dividends with their specific numbers below that. You’ll also see data such as current dividend yield, market cap, debt, and EPS numbers with percentage changes.
I thought faxing was dead but JCOM proves me wrong with its massive growth rates. I love that this company is so aggressive with acquisitions, making 29 of them in 2014 while anticipating a return on investment of > 20%. I like the story so far, but I can’t really picture the longer term outlook. I didn’t know what the internet was going to turn into 20 years ago and have no idea what it’ll look like in the future let alone how JCOM fits into that. So far JCOM has done great and seems prime to grow… who knows, maybe I’ll look back decades from now and wonder why I wasn’t more interested. For now I’ll pass.
Are you still interested? Check out this video for more information on the company:
Cisco (CSCO) designs, manufactures, and sells internet based networking products and services related to the communications and information technology industry. They have clients of all business sizes, public institutions, telecommunications companies, other service providers, and individuals. Cisco has been changing the way we work, live, play and learn for 30 years. They’ve only paid a dividend since 2011, but raised it every year since.
“We remain focused on shareholder value creation by maintaining the flexibility to make the right long-term strategic decisions for our company, driving efficiencies in our cost structure and returning capital through dividends and share repurchase to our shareholders. During fiscal 2014 we delivered strong operating margins. Additionally, we were very pleased to have substantially exceeded our goal of returning a minimum of 50% of our free cash flow annually to shareholders by returning $9.5 billion through share buybacks and $3.8 billion in dividends, totaling a record $13.3 billion returned to shareholders in the fiscal year.” ~ Cisco 2014 Annual Report
- Dividend growth rate 3 year average: 49.12%
- Dividend Payout ratio: 47%
- 10 year annual revenue growth rate: 10.90%
- Total Return Last 5 years: 12.87%
This is an excellent research candidate that seems to be undervalued at the moment. Rather than go into more details on this more well known company: Chuck Carnevale, the creator of fast graphs, posted the phenomenal article “Mr. Valuation’s Best Valued Ideas For Retirement And Dividend Growth Portfolios: Cisco” in March; it features interactive fast graphs so you can play around yourself. I highly urge you to read this article. I happen to like the prospects of Cisco and the internet of things. I’ve considered investing in Cisco for the right price.
Are you still Interested? Cisco has an awesome YouTube page full of videos about the company. Here’s a sample:
What do you think about these two technology businesses?