Written by Bob Ciura for Sure Dividend
For dividend growth investors, much favor is given to those large-cap stocks with incredibly long dividend growth streaks, such as the Dividend Aristocrats index.
However, investors looking for stronger returns could widen their search to include stocks with slightly shorter histories of dividend growth.
This article will look at three smaller Dividend Achievers, those companies with at least 10 years of dividend growth, that we feel could generate high total annual returns over the next five years. These stocks not only have solid dividends and dividend growth, but they also have appealing valuations and attractive growth prospects.
We consider each name to be a buy at the current price. The companies include:
- Hasbro, Inc. (HAS)
- The Scotts Miracle-Gro Company (SMG)
- Silgan Holdings Inc. (SLGN)
Dividend Achiever #1: Hasbro (HAS)
Hasbro is a leading maker of board games, toys and other leisure time products. The company was founded in the early 1920s, has a market capitalization of nearly $13 billion today and generates annual revenue of $5.5 billion.
While the company’s business can be considered discretionary, Hasbro has a very extensive lineup of popular brands. The company’s portfolio of nearly 1,500 brands includes G.I. Joe, Transformers, Monopoly, Play-Doh, My Little Pony and Magic: The Gathering.
The company has licensing agreements with key partners, such as The Walt Disney Company (DIS), which allows Hasbro to sell Star Wars and other related content. Hasbro also has an online gaming business that is enjoying high rates of growth.
This array of core brands allows Hasbro to appeal to a wide range of consumers. This mass appeal is one reason we believe that earnings-per-share will grow at a rate of 8% annually through 2026, which is more than double the long-term average growth rate.
Hasbro had increased its dividend for 16 consecutive years, but the dividend was paused in 2021, partly in response to the difficulty of the pandemic. Also factoring into this development was the company’s focus on investing in the future, one reason we feel that dividend growth will slow in the coming years. However, share yield 2.9% at the moment, more than twice the average yield of the S&P 500 index.
With the stock trading at 93 and our forecast of $4.70 of earnings per share for the year, Hasbro has a price-to-earnings ratio of 19.8. We have assigned the stock a target price-to-earnings ratio of 20 for 2026. Valuation expansion isn’t expected to provide much in the way additional returns over the next five years.
In total, we expect that Hasbro will deliver a total return of 10.9% through 2026, stemming from an 8% earnings growth rate and 2.9% starting dividend yield.
Dividend Achiever #2: Scotts Miracle-Gro (SMG)
Founded in 1868, Scotts Miracle-Gro is one of the oldest companies in the U.S. The company has transformed over that time into a leading provider of consumer lawn and garden products. Scotts Miracle-Gro also has a hydroponic and indoor growing business. The company is valued at $4.5 billion and has annual revenue approaching $5 billion.
Scotts Miracle-Gro is blessed with a portfolio of well-known and trusted brands, including Scotts, Miracle-Gro, Turf Builder and Ortho. These products are amongst the best-selling names in lawn and garden care, giving the company an enviable portfolio that it can leverage to grow its business.
The company performed very well last year when social distancing and work-at-home directives resulted in the home improvement binge that took place during the worst of the COVID-19 pandemic. Year-over-year results may be difficult to beat, but it does show that consumers will seek out Scotts Miracle-Gro’s offerings when they want lawn and garden products.
Earnings per share have compounded at a rate of 11.6% since 2011 due to the company’s market leadership. We believe a more conservative 7% earnings growth rate through 2026 is a reasonable place to start considering the high base that earnings will see this year.
Due to its strong business performance, Scotts Miracle-Gro has been able to raise its dividend for 12 consecutive years. The company raised its dividend 6.5% for the 9/10/2021 payment date, which was slightly below the stock’s compound annual growth rate of 9.4% since 2011. Shares yield 1.8%.
We expect the company to earn $9.15 per share in fiscal year 2021. With shares trading near 148, this implies a price-to-earnings ratio of 16.2. We have a five-year target multiple of 23 times earnings. Valuation could add 7.3% to annual returns over the next five years.
Added up, we project that Scotts Miracle-Gro will return 16.3% per year over the next half-decade. This return will include a 7% earnings growth rate, 1.8% yield and 7.3% contribution from multiple expansion.
Dividend Achiever #3: Silgan Holdings (SLGN)
Silgan Holdings started as a two-person business in 1987 that has transformed into a leading supplier of sustainable rigid packaging solutions for a variety of consumer goods products. The company generated revenue of nearly $5 billion last year and has a market capitalization of $4.5 billion.
Silgan Holdings’ products are used in many items that consumers touch every day. This includes steal and aluminum containers for human as well as pet food and metal, composite and plastic vacuum closures for food and beverage products. Silgan Holdings also creates custom designed plastic containers and closures for a whole host of end markets. With a very humble start, the company now operates 110 manufacturing sites.
Over the last decade, Silgan Holdings has managed to compound earnings per share at a rate of just over 8%. We believe that the company will actually see a slightly higher growth rate going forward of 9% given Silgan Holdings’ leadership position in its industry.
At 17 years, Silgan Holdings has the longest dividend growth streak of the companies discussed here. The company latest raise provided a 16.6% dividend increase for the 3/31/2021 payment date, a very aggressive move considering the dividend has compound at a rate of 9% since 2011. The stock yields 1.4%, which still tops the average yield of the market index.
Silgan Holdings trades at 40.50 at the moment. We expect the company to earn $3.07 per share this year, resulting in a price-to-earnings ratio of 13.2. With a 2026 target price-to-earnings ratio of 14, we estimate that multiple expansion could add 1.2% to annual returns.
Shares holders of Silgan Holdings could see as much as 11.6% in annual returns through 2026 due to a 9% earnings growth rate, 1.4% starting yield and a small contribution from a rising multiple.
Final Thoughts
Hasbro, Scotts Miracle-Gro and Silgan Holdings prove that investors should just look beyond the most well-known names in dividend growth investing to find good opportunities for high returns. Each name has a solid dividend growth track record and each stock could produce 10%+ total returns over the next five years.
