3 Dividend Companies With Earnings that Increased Every Year Through The Recession

By Mark Bern, CPA CFA

These three dividend paying companies all had at least one thing in common: Earnings per share increased every year, even during one of the worst recessions since the Great Depression. Additionally, each of these companies either increased dividends in each of those years (2006 – 2010) or at least maintained dividends with no decreases and had higher dividends in 2010 than in 2006.

I also compared records on cash flow and revenue per share as well as debt levels, return on equity and profit margins. If a company shows consistent improvements in all of these categories relative to their peers I believe we can classify the companies as “quality.” I like high-quality stocks in my portfolio and assume that most other investors do as well. But I should caution readers that this list is provided as a good starting place only. You should always do additional analysis and research to determine if a company’s stock represents an appropriate investment for your portfolio.

My first company is Bristol-Myers Squibb (BMY). BMY is a large healthcare company that manufactures pharmaceuticals, diagnostics, infant formula, orthopedic implants and health and beauty aids. The company earnings per share increased by an average of 3% per year during a very difficult economic environment from 2006 through 2010.

Cash flow per share dipped slightly in 2010 but is rebounding nicely in 2011 and rose in each of the other years. Revenue per share increased in every year. Dividends were flat in 2009 but rose in each of the other years. Return of equity rose from 13.6% to 19.8% while long-term debt decreased from over $9.6 billion to $5.3 billion. The profit margin also performed well by increasing over the period from 8.8% to 15.9%. All this was accomplished during one of the most challenging business environments U.S. companies have ever faced. I would call that good management.

	2006	2007	2008	2009	2010
EPS	$0.81	$1.09	$1.59	$1.63	$1.79
Sales / Share	$9.13	$9.77	$10.43	$11.00	$11.47
Cash flow/Share	$1.29	$1.54	$2.01	$2.31	$2.26
Dividend/Share	$1.12	$1.15	$1.24	$1.24	$1.28
L/T Debt	$9.6 billion	$4.4 billion	$6.6 billion	$6.1 billion	$5.3 billion
Return on Equity	13.6%	20.5%	25.7%	21.9%	19.8%
Net Profit Margin	8.8%	11.2%	15.3%	17.2%	15.9%

My second company is General Dynamics (GD), an aerospace/defense company that derives 72% of its revenue from the U.S. government and 18% from foreign sales. GDs sales per share increased in each year from 2006 through 2010 as did cash flow, earnings and dividends per share. Long-term debt increased, and then dropped to below 2006 levels by 2010. Both the net profit margin and return on shareholders’ equity increased over the period as well. These are all indication of positive management decisions during a difficult environment.

Granted, GD was helped by the wars in Iraq and Afghanistan but operations had already begun to wind down during 2010 and I would have expected at least some of the metrics to have deteriorated. The company has an ongoing share buyback program that helps keep these numbers up, but that is just another form of returning excess earnings to shareholders and a tool for increasing the value of each share. Another indication of that commitment to return excess earnings to shareholders is that dividends have increased every year for 14 consecutive years. I like that. Let’s take a look at the numbers for General Dynamics.

	2006	2007	2008	2009	2010
Earnings/Share	$4.20	$5.10	$6.13	$6.20	$6.82
Sales/Share	$59.30	$67.43	$75.77	$82.92	$87.26
Cash flow/Share	$5.16	$6.20	$7.47	$7.70	$8.59
Dividend/Share	$0.89	$1.10	$1.34	$1.49	$1.64
L/T Debt	$2.8 billion	$2.1 billion	$3.1 billion	$3.2 billion	$2.4 billion
Return on Equity	17.4%	17.7%	24.3%	19.4%	19.7%
Net Profit Margin	7.1%	7.6%	8.3%	7.5%	8.1%

My third company is less well-known, but a potential gem: Quality Systems (QSII) is in the healthcare information systems sector. The dividend is yielding only 1.9% but it has risen in each year with only one exception: From 2006 to 2007 the dividend remained flat. Earnings per share have increased consistently since 1998. That is a nice record, especially since the company hasn’t started buying back shares.

Cash flow per share has also risen just as consistently. Sales per share have risen every year since the mid-1990s, without a hitch right through two recessions. The company has no long-term debt. I especially like that. The return of shareholders’ equity (ROE) has dropped somewhat since 2006 but has stabilized at just below 30%. That’s a pretty nice number that I could live with for a long time and it looks like the company should be able to sustain it for the foreseeable future. Finally, the profit margin has moved with the ROE (or vice versa) and has likewise stabilized at a reasonable level near 20%. The profit margin for 2011 looks like it will come in at over 19%. I can definitely live with that number.

	2006	2007	2008	2009	2010
Earnings/Share	$0.61	$0.72	$0.81	$0.84	$1.06
Sales/Share	$2.90	$3.40	$4.32	$5.05	$6.09
Cash flow/Share	$0.71	$0.85	$0.97	$1.03	$1.19
Dividend/Share	$0.50	$0.50	$0.58	$0.60	$0.63
L/T Debt	-0-	-0-	-0-	-0-	-0-
Return on Equity	36.4%	35.2%	29.6%	25.7%	27.4%
Net Profit Margin	21.1%	21.5%	18.8%	16.6%	17.4%

All told, I believe that these are three companies that dividend/growth investors should take a closer look at. QSII is especially appealing, even with the lower dividend, for those investors who would like more potential appreciation since the government is trying hard to move the healthcare industry toward better information systems like those offered by QSII.

As always, investors should use this information as a good starting place from which to assess the appropriateness of the individual companies highlighted. Due some due diligence and make sure each company you purchase fits within your portfolio to help meet your needs and diversification.

If you are interested in other companies that increased earnings and dividends through the last recession please consider reading a related article here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.