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5 Stocks With Recent Dividend Boosts - 19856 views
BALTIMORE (Stockpickr) -- It’s no surprise that earnings season is continuing to provide a smorgasbord for income investors this quarter. That’s something that we touched on recently, as a handful of dividend-payers announced increases in their payouts to shareholders.
While decent performance in the S&P 500 is taking some of the glitz and glamour away from income payers (capital appreciation is often the more in-your-face method of earning returns), investors shouldn’t forget just how crucial dividend stocks can be to their portfolio returns.
After all, statistics show that it pays to buy dividend stocks. Over the last 36 years, dividend stocks outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to a study from NDR.
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That said, not all dividend stocks are created equal. While that statistic applies to all companies that pay dividends, the companies that increase those dividend payouts over time are even better.
We regularly take a look at income stocks paying out cash to investors. This time around, we’ll focus on firms increasing their payouts. With that, here’s a look at five new dividend payment boosts.
First up this week is Dow Chemical (DOW), a $46 billion manufacturer of chemicals and other raw materials that are used in a wide array of consumer and industrial applications.
Not surprisingly, the “Great Recession” hit Dow hard as global demand for its offerings contracted amid uncertainty in the marketplace. But the company took diminished valuations across the board as an opportunity to grow its business through acquisitions at rock-bottom prices and shore up its efficiency while expectations remained uncharacteristically low.
Today, Dow sports a more attractive portfolio that should benefit from anticipated manufacturing increases in the next few years. In the process of shoring up its operations (and divesting itself of less admirable businesses), Dow has managed to strengthen its balance sheet and deepen its margins -- two major factors that should contribute to continued dividend payouts for shareholders.
Its recent dividend increase brings the firm’s payout to 25 cents per share, a 66.7% increase.
Dow Chemical shows up in the portfolios of Dodge & Cox, with a 44.2 million-share position as of the most recently reported period, and Charles Brandes' Brandes Investment Partners, with a 6.7 million-share position.
Despite relatively tepid price appreciation in the broad market, shareholders of Fastenal (FAST) have already tapped into nearly double-digit gains thus far in 2011. Those returns have just increased thanks to the company’s 4% dividend increase. Even though the dividend hike is hardly the biggest of the group, it’s Fastenal’s consistent increase in shareholder payouts that make it worth watching for income investors.
Fastenal is a league leader in the industrial and construction supply business, carrying nearly a million different fasteners, tools and other products at its nearly 2,500 stores worldwide. Though the depth of Fastenal’s offerings is daunting, it’s really the firm’s geographic footprint that gives it a competitive edge against this smaller, fragmented market. Because few can compete on a scale basis with Fastenal, this stock has seen striking growth numbers in recent years.
Even more auspicious is the recovery that’s currently in-process in the construction business. Because construction amounts to nearly a quarter of the company’s total revenues, the nearly 20% improvement in sales to the sector suggest even more impressive long-term growth for investors who weren’t scared away from a potential shortfall in customers. Expect this stock to continue its trend of modest dividend increases lock in step with fundamental growth.
Fastenal is one of TheStreet Ratings' top-rated trading and distributors stocks.
Procter & Gamble
With a $176 billion market cap and a 3.33% dividend yield, Procter & Gamble (PG) is the prototypical blue chip income stock. But with consistent, double-digit dividend growth rate (even in the midst of the recession), this stock is anything but typical in its income generation. Its recent 9% dividend hike continues Procter’s trend of income outperformance.
Not only is this stock’s track record of income generation impressive, so too is its capital growth. While the S&P has produced paltry 1.92% gains in the trailing five years, Procter has managed to offer up more than six times those returns, generating 12.07% before dividends over that same period. That’s a material difference.
Like many other large firms, Procter & Gamble shifted its focus to improving efficiency in 2007 and 2008, boosting its margins and decreasing the damage that decreased sales numbers could bring to the company’s income statement. With a solid, top-notch balance sheet and massive free cash flow generation abilities stemming from a portfolio of leading household brands, Procter is a good core holding for any income portfolio.
United Technologies (UTX) is another recent notable large-cap dividend increase -- the company announced a 12.9% dividend hike that brings its quarterly payout to shareholder up to 48 cents per share. That’s a 2.2% yield at current prices.
Like Procter, United Technologies has been home to strong capital appreciation in the past, albeit at a cost of substantially higher volatility. Buyers beware: with deep exposure to the construction and aerospace industries, UTX owns a set of businesses that are extremely beholden to the ebb and flow of the business cycle. That said, UTX isn’t quite the same as the other companies in its peer groups.
For starters, the company owns a portfolio of innovative firms that benefit from an absolutely massive backlog that’s currently in excess of $50 billion. The yearlong lag in that backlog helps to smooth the company’s earnings throughout tougher times.
Speaking of conglomerates, General Electric (GE) has been in focus on Wall Street today because of an impressive bit of earnings surprise in this morning’s first quarter numbers -- and a 7.1% dividend increase that brings GE’s payout to 15 cents per share. (Not to mention that GE was one of our recent Must-See Charts)
While GE’s dividend suffered a major pullback from the impressive 31-cent per share payout that investors were able to claim just a few years ago, it’s an understandable change given the firm’s excessive exposure to the credit market through its then challenged GE Capital business unit. Consistent increases in the firm’s dividend payout are a priority for management; now GE can become a priority for income-seekers again.
For more dividend stocks, check out the Dividend Stocks for the Week portfolio on Stockpickr.
And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.