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7 Dividend Stocks Hiking Payouts in February - views
BALTIMORE (Stockpickr) -- Even with U.S. stocks performing well at the start of 2012, dividends are still investors’ best bet in this market. The S&P 500 index has rallied nearly 8% this year, one of the strongest starts for equities in recent memory, but that doesn’t mean that dividends are out the door -- not in the least.
In the past, dividends have been the last resort for a rough market. During the bull markets of the last decade, investors have opted to search out stocks with potential for capital gains, even if that meant sacrificing yield for their portfolios. But looking at the returns of the last decade has done quite a bit to change that mentality. In the past 10 years, dividend payouts have returned the vast majority of stock returns for investors, sparing income investors from the “lost decade” scenario that’s scared so many away from stocks in the last few years.
But as stock prices slowly ratchet higher, yields are falling. The only antidote can be found in companies that hike their dividend payouts. That’s why we’re taking a closer look at seven dividend stocks raising their payouts in February.
Want more reasons? Over the last 36 years, dividend stocks have 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 data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
That’s why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here’s a look at seven of the stocks that hiked payouts in the last week.
If 2012 has been a good year for the broad market, it’s been an even better one for cigarette maker Lorillard (LO). This $16.7 billion tobacco stock is up more than 10% year-to-date, performance that only adds to the firm’s hefty dividend payout. Last week, management increased the firm’s dividend 19% to $1.55 per share. That’s a 5% yield at current price levels.
Lorillard has had a pretty interesting run for the last couple of years. News that the FDA was considering regulatory action against menthol cigarettes was a major black cloud for Lorillard, whose mentholated Newport brand contributes around 94% of sales for the firm. While those black clouds have dissipated a bit, investors are still a bit anxious about the potential for downside in LO.
The firm’s fourth-quarter earnings helped investors forget about their objections a bit. The combination of double-digit top-line growth and premium pricing ability on the Newport brand delivered a nice boost to Lorillard’s bottom line, and helped to fuel the firm’s dividend hike. With a solid balance sheet and impressive cash generation capabilities, Lorillard makes a sound core income holding even if its headline risks are higher than they are for peers.
Dr Pepper Snapple Group
Beverage firm Dr Pepper Snapple Group (DPS) owns an enviable stable of brands that includes namesakes Dr Pepper and Snapple, in addition to A&W, 7UP and Hawaiian Punch. While the firm is dwarfed by the likes of Coke (KO) and PepsiCo (PEP), DPS is the industry’s league leader when it comes to dividends. Thanks to a 6.3% payout hike last week, the firm’s quarterly dividend now stands at 34 cents per share, a 3.4% yield.
Those brands are a crucial element of Dr Pepper Snapple’s success. The majority of revenues come from category-leading drink brands, something that the firm would likely find more challenging if it tried to take on its larger rivals head to head with a cola offering. Even though size is a big benefit in the beverage industry (as evidenced by Coke and Pepsi’s scrambles to acquire bottlers), DPS does boast a reasonably strong degree of vertical integration, which gives the firm better control over its production process.
International growth has been a major tailwind for the beverage industry, something that DPS hasn’t really been able to take advantage of because of the scale of its distribution network. Partnerships with peers stand to expand DPS’ geographic footprint and fuel growth for the foreseeable future.
While beverages are a capital-intense business, Dr Pepper Snapple boasts a strong balance sheet with ample liquidity to keep paying out its rising dividend to shareholders. In the beverage industry, DPS makes a reasonable core income holding.
Of course, we can’t talk about dividend hikes in the beverage business without bringing up Coca-Cola (KO), the world’s largest beverage company. Yesterday, the firm announced an 8.5% dividend increase, bringing its quarterly payout to 51 cents per share. While Coke’s 3% dividend yield may fell a bit shy of DPS’ 3.4% payout, this firm’s starkly different global operations and financial stability make it a perennial go-to name for income investors in this market.
Coca-Cola enjoys one of the largest distribution networks in the world, with operations in more than 200 countries. The result is a firm whose products make up around 3% of the 55 billion beverages served worldwide each day. While the beverage industry is certainly saturated, worldwide exposure to growth markets in countries such as China could still provide significant growth opportunities for Coke in the years ahead.
As significant as Coke’s network may be for growth, the firm’s brand is even more important for Coke to retain its top spot in the beverage industry. Consumer stickiness is particularly high in the soft-drink business, thanks in part to the “soda wars” waged by Coke and Pepsi in the ad market to convince consumers to switch brands. Coca-Cola’s attractive portfolio of brands creates the biggest economic moat for the years ahead.
Meanwhile, this name makes for a solid core income holding in 2012.
Coca-Cola, one of Warren Buffett's stocks, is one of 10 Companies in the "Ultimate Stock Pickers" Portfolio.
Even if you’re not familiar with the name Omnicom Group (OMC), you’re probably familiar with the firm’s work. OMC is a $13 billion advertising and marketing firm that’s been behind ad spots during the Super Bowl, on regular TV lineups, in print, and online. The company serves more than 5,000 clients worldwide. Some of the most prominent ad agencies in the world, including DDB and BBDO fall under the Omnicom umbrella, factors that give OMC a big advantage in a saturated industry where reputation counts.
A decline in global advertising spending during the recession was a major knock to OMC’s revenues during the past few years. But with ad spending coming back on track, this firm has managed to eclipse its pre-recession highs, raking in almost $13.8 billion on its top-line in fiscal 2011.
The service-driven nature of OMC’s business means that the firm is able to collect fairly strong net margins for its work, but it also ups the ante on retaining top advertising talent. Because sales positions and creative positions in the ad business can lead to client flight, the firm will need to continue keeping its talent happy if it wants to remain one of the leading firms in the global advertising market.
Last week’s 20% dividend increase brings Omnicom’s quarterly dividend payout to 30 cents per share. That gives investors a 2.5% yield at current price levels.
OMC shows up on recent lists of JPMorgan's 24 Stocks That Are More Attractive Than Apple and 9 Stocks Giving Mutual Funds a Breakout Year.
Time Warner (TWX) is another name that’s been beholden to advertising spending for the last few years. The firm owns some of the most popular television networks, including HBO, CNN and TNT, a publishing arm that puts out Time and People, and the largest film studio in the world.
In 2009, Time Warner became strictly a media company after spinning off its cable utility business into Time Warner Cable (TWC) and its ISP buinsess into AOL (AOL). The moves improved TWX’s balance sheet position and took a major earnings drag in AOL off the firm’s books.
Despite its apparent media conglomerate nature, Time Warner is ultimately a cable business. The vast majority of revenues and cash flows come from the cable networks business, a lucrative business that benefits from the integrated nature of the firm’s film studios and absolutely massive content library. Even though movie making only contributes a small chunk of cash flow to Time Warner, they have an important task in helping to fuel the cable networks with content.
With major changes taking place in the TV business thanks to the popularity of streaming video, Time Warner will need to continue to be an advocate for new services if it wants to continue to court viewers.
The firm’s 2.74% dividend yield got a boost last week from management’s decision to raise its dividend payout by 11%. The move puts Time Warner’s dividend at a quarterly 26 cents per share.
Time Warner, oneo f the highest-yielding media stocks, shows up on a recent list of Stocks in Bottoming Sectors Primed for a 2012 Bounce.
Digital Realty Trust
Digital Realty Trust (DLR) is a $7.25 billion real estate investment trust (REIT) that owns datacenters, internet gateway facilities, and corporate headquarters; in total, the firm owns 96 properties that span 16.8 million square feet of leasable space. DLR’s positioning makes it unique among REITs, particularly given the economic tailwinds in the IT business right now as demand for tech services outpaces carriers’ capacity. DLR should continue to benefit from that trend.
While many people think of REITs as a way to get real estate exposure for their portfolios, they’re really not. Commercial REITs like DLR enter into long-term, triple-net leases that spare them from the unknowns of property taxes, insurance, and maintenance costs. The result is extremely predictable income streams spread out over very long time periods. When coupled with REITs’ obligations to pay the vast majority of earnings out to shareholders as dividends, investors are left with income-generation machines rather than real estate instruments.
DLR’s tech-centric positioning only makes it a more attractive option. This week, DLR announced a 7.4% dividend increase, bringing the firm’s payout for this quarter to 73 cents per share. That’s a 4.23% yield at current price levels.
Investors looking for REIT exposure should give DLR a second look in 2012.
DLR shows up on a recent list of 4 Companies Riding Facebook's Wave.
Scale matters in the money transfer business. That’s what makes Western Union’s (WU) global network of 400,000 agents such a big deal -- customers who want to transfer money can easily find a location for their transactions. That geographic footprint has helped to make Western Union the biggest money transfer firm in the world, with a 20% share of the global market.
For every dollar that traverses WU’s network, shareholders get a cut; the firm increased its quarterly dividend by 25% last week to 10 cents per share.
Western Union’s bread and butter comes primarily from immigrants who want safe ways to send money back home. Global remittances increased throughout the recession, providing the firm with a steady trickle of top-line growth. With extremely deep margins and the league-leading brand, WU should continue to see tailwinds in the next few years.
In today’s security-conscious world, regulators have their eyes on companies that transfer cash. The increasing administrative and compliance requirements for money transfer companies has helped to force smaller rivals out of the market, clearing the way for large names like Western Union to take a bigger piece of the transfer business.
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-- 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.