Dividend Growth Momentum

Accelerating dividend growth, accelerating free cash flow growth, accelerating earnings growth, and accelerating total return growth – Arthur J Gallagher & Co. (AJG) is a model dividend citizen with low debt, low payout, high dividend coverage, and 36 years of increasing dividends.

Year on year growth that is increasing each year is what we call momentum in our dividend universe. AJG has demonstrated that ability for 10 years and counting. This, along with being a Dividend Aristocrat, is a sign of a well-managed company.

GROWTH

AJG’s 5-year average dividend growth rate is 4.1%, far below the dividend universe average of 10.2%. However, the rate of growth has increased for the past ten years. Free cash flow has grown at an average rate of 21.1% per year for the last 5 years versus the dividend universe at 7%, so AJG is performing very well.

INCOME

AJG’s current dividend yield is 1.34%, well below the dividend universe’s average yield of 2.42% this month. Typically, growth companies have lower dividend yields. 

SAFETY

We use the Dividend Coverage Ratio to measure the dividend’s safety – higher is better. AJG has a DCR of 5.1 which is very good, more than double the minimum of 2. 

VALUATION

The price at time of analysis was $139.31, which is Overpriced. A fair price would be around $97.51. Our ‘Value Rating’ for Arthur J. Gallagher & Co is 1.5 out of 5.0, meaning that both PS and PE indicate the stock is moderately expensive, compared to other dividend stocks available.

TIMING

Based on recent prices, we feel that AJG is not “selling at a discount” as determined by historical PE ratios and dividend yield. This is just one factor consider when making a purchase decision. 

QUALITY

Our quality formula gives AJG a ‘Quality Rating’ of 4.1 (out of 5), versus the average of 2.8 for this month’s dividend universe.

TOTAL RETURN

Over the last 15 years, the compound annual growth rate for an investment in Arthur J. Gallagher & Co was 15.6% per year with dividends reinvested, versus the S&P500 Total Return of around 10.76% per year for the same time period. As you can see, AJG is beating the S&P500 with dividends reinvested. We consider AJG as a worthy candidate for further investigation.

Overall, compared to our universe of dividend stocks this month, we rate Arthur J. Gallagher & Co a ‘B-.’