- 4 Stocks Under $10 to Trade for Breakouts
- 3 Stocks Under $10 Making Big Moves
- 5 Stocks Under $10 Moving Higher
- 5 Stocks Under $10 Set to Soar
- 5 Big Trades to Take in December
7 Dividend Stocks Hiking Payouts in February - views
BALTIMORE (Stockpickr) -- If money talks, dividends just won’t shut up right now. For investors, that’s a very good thing.
For many, it may seem like a renewed emphasis has come back onto dividends in the last few years. In large part, that’s because it has. Post-crisis, both the S&P 500 and the Dow Jones Industrial Average are paying out higher average sustained dividend yields to investors than they have since the mid-1990s. That’s a massive shift toward the importance of income; where dividend payers were once the “boring,” low-growth names, investors are starting to expect income from more buoyant stocks in 2012.
And there’s more where that came from. Corporations are still sitting on record profits and balance sheet cash positions, two critical factors in a company’s ability to pay out higher dividends to investors. Many investors are still ignoring dividends, opting instead to focus on names that they think have better capital gains potential. If that’s your strategy, you may want to take a second look at it.
That’s because, historically, total returns are almost entirely driven by dividend payouts, and capital gains and income actually go hand in hand.
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.
First up is $107.5 billion computer networking giant Cisco Systems (CSCO), the largest-cap stock to announce a dividend hike in the trailing week. Cisco has ridden a bit of a roller coaster in the last year, losing more than a third of its value by August before rebounding again in early 2012. But while share prices have been somewhat volatile, dividend payouts have been consistent since the firm announced its first dividend in 2011.
While the company still sports a modest yield at 1.2%, a 33.33% increase in the firm’s payout announced on Tuesday sets a solid precedent for further hikes.
Cisco’s toehold on the enterprise networking market is the firm’s biggest competitive advantage right now. While there are other companies that sell things like routers and switches, Cisco’s huge installed base means that customers who want to avoid compatibility headaches are more likely to stick with Cisco. That’s not infinitely sustainable, however, as large-scale systems upgrades are standard, and lower-cost competitors could capture a bigger chunk of the market. Cisco will need to continue to innovate in the industry if it wants to incentivize enterprise IT managers to continue to use its offerings.
While there was considerable potential in Cisco’s consumer business, the firm has unceremoniously shifted its focus back to its core competency, shuttering its Flip camera business in the process. Even if the move is good for Cisco’s bottom line in the near-term, the company could be leaving long-term money on the table by not staying competitive in the consumer market. A more balanced approach would be welcomed by investors.
Cisco’s dividend yield hardly qualifies it as a core income holding, however for investors who want to buy this networking firm anyway, the payout provides some nice added value.
Large-cap oil exploration and production company Occidental Petroleum (OXY) is putting in an impressive start for 2012. Already, shares have rallied more than 11% this year, and the firm’s 17.4% dividend hike yesterday should help to put more distance between OXY’s returns and breakeven. The hike puts Occidental’s payout at a quarterly 54 cents per share – that’s a 2.07% yield at current prices.
Occidental produces approximately three-quarters of a million barrels of oil each day, production that leaves the firm well shy of the supermajors but puts OXY in excellent position with oil prices skirting triple-digit levels this month. Scale isn’t a huge advantage in the oil business -- instead, the cost of pulling crude out of the ground is the key factor that sets a firm apart. Occidental’s costs are reasonably low, and stand to potentially get even lower if current exploration efforts pan out as analysts expect.
Meanwhile, with renewed tension in the Middle East threatening a spike in oil prices, natural gas exposure could meaningfully buoy share prices for OXY this year as consumers start substituting one fuel source for another.
With a bulletproof balance sheet and deep net margins, investors should expect OXY to continue hiking its yield going forward.
United Parcel Service
What can Brown do for you? For starters, the firm can pay you a pretty strong dividend right now. United Parcel Service (UPS) hiked its dividend payout by 9.62% yesterday, bringing the firm’s quarterly dividend to 57 cents per share, approximately a 3% dividend yield.
UPS is the largest package delivery company in the world, serving up more than 16 million packages per day though its system. Unlike the oil business, scale absolutely does matter in the delivery business, and UPS effectively competes in a duopoly with top rival FedEx (FDX) following the exit of DHL from the U.S. premium shipping market. In a system with lots of moving parts, UPS’ logistical prowess is a critical component of its profitability -- the fact that the firm’s transportation network operates more efficiently than rivals is telling.
The package delivery business is capital-intense, and UPS’ balance sheet is fairly strong given the capital requirements that the firm needs to keep up its huge network. That said, huge cash flows should easily keep supporting UPS’ dividend payouts for the foreseeable future.
Transports generally see expansion on the front end of the business cycle. If the economy is just starting to rev its engine again, UPS is one of the better stocks to get exposure to.
3M (MMM) manufactures a slew of industrial and consumer products that range from Scotch Tape and Post-It Notes to industrial adhesives and computer screen security devices. That wide mix of broad appeal office supplies and higher-ticket niche offerings makes 3M more attractive than its average peer in this market.
So does the company’s 2.7% dividend payout; on Tuesday, management hiked the company’s dividend by 9.62% to 59 cents per share. That’s the 54th consecutive year of payout hikes for the Minnesota-based company.
Innovation has been one of the biggest keys to 3M’s success. The firm hasn’t just managed to develop some of the most successful consumer products out there, it’s also managed to reinvent and modify them, squeezing extra life out of offerings that have ample generic competition creeping in.
Besides creating new products, international growth stands to provide the most upside potential for 3M. Even though international sales have made up the lion’s share of 3M’s revenues for a while now, less saturated emerging markets still offer room for 3M to stretch its legs both near and long-term.
Despite some recent acquisitions, 3M’s balance sheet is in strong shape. The firm has ample liquidity with $4.7 billion in cash and investments, a number that more than offsets 3M’s debt load. Income investors looking for consumer exposure could do much worse than 3M.
Number-two payment network MasterCard (MA) has made some stellar progress in the last year, rallying more than 60% as investors piled into a growth story for electronic payments.
Put simply, consumers are transitioning en masse from traditional payment options like cash and checks to electronic options like credit and debit cards. In the past few years, as MasterCard captures a chunk of a growing pool of dollar volume, the firm has been enjoying stair-step growth.
Even though MasterCard’s presence on around a third of the world’s payment cards pales in comparison to the 63% share commanded by Visa (V), the combination of plenty of excess network capacity and major growth initiatives in international markets could help the company slowly close the gap. That’s going to change at some point, however. As electronic payments continue to expand in popularity, the disparities between different networks are likely drop off, and the card acceptance arguments being made by payment networks isn’t going to work with consumers. Instead, MasterCard needs to continue to make a compelling case to card issuers.
Because MasterCard isn’t an issuer itself, the firm is completely devoid of the credit risk that its clients take on. That means that the firm benefits from all of the consumer spending upside but none of the downside from bad lending standards -- an impressive proposition for most investors.
MasterCard doubled its tiny dividend payout on Tuesday, bringing the firm’s quarterly dividend to 30 cents per share.
The world’s largest copper and molybdenum producer, Freeport-McMoRan (FCX) is another firm that increased its dividend payout on Tuesday. The firm raised its payouts by 25%, bringing its quarterly dividend to 31 cents per share. That’s a 2.2% yield at current share price levels.
Freeport produces around 12% of the world’s copper output, a scale that affords the firm an attractive market position for the metal. The combination of absolutely staggering copper production along with exposure to precious metals (gold) and rare earths (molybdenum) gives Freeport an attractive level of diversification for a metals miner. While the three are likely to see prices move more or less aligned with one another, with demand for all three metals driven by completely different buyers, Freeport does have some protection here.
More recently, high metals prices have generated strong performance for Freeport, even if output volumes haven’t been as high as the firm had originally planned. This firm should have no difficulty maintaining its dividend payouts for the foreseeable future.
Freeport shows up on recent lists of 10 Stocks JPMorgan Says May Rise Up to 58% and Stocks in Bottoming Sectors Primed for a 2012 Bounce.
Apache (APA), which also shows up on the list of 5 Oil & Gas Stocks Headed Higher in 2012, has been on an impressive run in 2012: year-to-date, shares of the $41 billion oil exploration and production firm have rallied close to 18%. That’s thanks in large part to strong earnings performance and sustained high prices for the firm’s 3 billion barrels of proven reserves. Right now, the firm is in solid positioning to keep that upside trajectory going.
Apache is one of the most diversified names in the E&P business. The company’s reserves span the globe, production methods, and include a mix of both oil and gas. Even though diversification is somewhat difficult to accomplish for an oil company, Apache’s risks are about as spread out as they could reasonably be. A conservative balance sheet adds to the attractiveness of this name going forward.
To be clear, Apache isn’t a dividend stock in the conventional sense. While the firm has paid out a dividend for the last 46 straight years, its current yield only rings in at 0.64%. Yesterday’s 13.33% dividend hike improves Apache’s quarterly payout to 17 cents per share, it’s still not a material move. Income investors should look elsewhere for an E&P core holding.
To see these dividend plays in action, 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.