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7 Dividend Stocks Shoveling Cash to Shareholders - 111499 views
BALTIMORE (Stockpickr) -- It’s weeks like this one that remind us why it makes sense to be an income investor.
At Friday’s open, the S&P 500 has already shed 3.3% on the week, eclipsing any of the other weekly losses we’ve seen in 2010. As I mentioned yesterday, it’s not corporate fundamentals that are pushing down share prices this week. Instead, the debt-ceiling-induced buying freeze is the culprit.
In actuality, fundamentals have been strong so far this quarter. The vast majority of S&P and Dow stocks are beating Wall Street’s expectations for the second quarter, and corporate profits are sitting at an all-time high this month. You just wouldn’t know it to look at the market.
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Dividends solve that problem, at least in part. By giving companies a chance to directly impact investors’ returns by doling out cash, dividends bridge at least some of the gap between fundamentals and market prices. And historically, they’ve provided investors with the best of both worlds.
Instead of being mutually exclusive, dividends and capital gains actually go hand in hand. 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.
The numbers are even more compelling when looking at companies that consistently increase their payouts.
That's why, each week, we take a look at the stocks that declared dividend increases the previous week. Here's a look at some of several stocks from our list of recent dividend-increasers.
Even if 2011 has proven challenging for stocks, it’s still been a strong year for shares of Altera (ALTR). The $13 billion semiconductor company has seen its shares rally more than 14% so far this year. Last week, Altera’s management opted to increase that return even more by announcing a 33.3% dividend increase. That move brings Altera’s yield to 0.79% at current price levels.
Altera is a leader in the programmable logic device market, a subset of chips that can have its circuitry -- and functions -- reprogrammed by the manufacturer’s clients and are purchased by original equipment manufacturers of everything from communications devices to automobile components. Altera is half of the PLD duopoly that currently dominates the market.
The abundance of new devices hitting the marketplace is one of the most compelling growth catalysts for Altera right now. High switching costs should guarantee that the firm is able to capture a material chunk of new device contracts as they come available.
Solid financial health suggests that the firm’s modest dividend is secure for the moment. While this name is far from a core income holding, it should still present a good source of diversification for any dividend portfolio.
If 2011 has brought strong performance for Altera, it’s done one better for J.M. Smucker (SJM), the food company behinds such brands as Smucker’s, Jif, Folgers and Pillsbury. Shares of the food firm have gained more than 20% so far this year -- and they’ve more than doubled since the 2009 market bottom.
It’s that double that makes J.M. Smucker’s most recent dividend hike all the more compelling. The 9% dividend increase brings the firm’s yield to 2.45% at current prices -- or more than 5% for those who’ve held since the start of 2009.
Like other food companies, Smucker has had to deal with the challenges of rising input costs in the last year or two. Even so, the company’s scale has largely spared it from having to tighten its belt too much in 2011. The acquisition of coffee giant Folgers in 2008 substantially changed J.M. Smucker’s business -- and the timing meant that Wall Street mostly underappreciated the implications until the recession started to shake itself out.
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High brand significance is one of the biggest advantages Smucker’s has in its corner; consumers have proven less likely to substitute the firm’s grocery offerings cheaper store brands. Cash flow generation is impressive at J.M. Smucker, and the firm is easily able to maintain the increased debt load that it took on as a result of bargain-priced expansion during the recession. Expect dividends to remain unencumbered in 2011.
Smucker is one of TheStreet Ratings' top-rated food products stocks
As a natural gas master limited partnership, Oneok (OKE)’s business should seem familiar to investors who pursue income instruments. Essentially, Oneok’s business is more about cash generation than anything else -- and its legal structure allows it to pass through the vast majority of its earnings directly to shareholders. That dividend payout increased 7.7% last week to 56 cents per share.
Oneok has been living up to its directive in the last couple of years, dramatically increasing its dividend payouts as the profitability of its natural gas operations continues to improve. The regulated nature of much of Oneok’s business has been a good thing for the predictability of earnings, but it could be less attractive if Wall Street’s bullish take on natural gas prices pans out as predicted.
This stock remains a solid alternative for investors looking for less common exposure to commodity-driven income.
Oneok is one of TheStreet Ratings' top-rated gas utility stocks.
AptarGroup (ATR) is one of the world’s largest manufacturers of pumps, container closures and aerosol valves for pharmaceutical, cosmetic and beverage markets. It’s that unique niche that affords Aptar such an attractive economic moat. While other packaging and container manufacturers may prefer to develop their own dispensing systems, the costs and developmental challenges of creating their own offerings are often prohibitive. As a result, Aptar currently controls an impressive chunk of the market.
More than half of Aptar’s profits come from the pharmaceutical segment, where the firm is able to command deeper margins for its more advanced dispensing technologies. Because of the added levels of government regulation that police pharmaceutical packaging, Aptar’s pharma customers are also stickier than those of its other business lines.
Aptar boasts a strong balance sheet right now, with a positive net cash position, relatively little debt and plenty of liquidity. That’s good news for fans of this stock’s dividend. Last week, the firm’s management announced a 22.2% dividend increase that puts the firm’s current yield at 1.72%.
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It’s been an interesting year for newspaper publisher Gannett (GCI). The entire industry has been under fire in recent years, as recession-induced advertising declines collided with increased competition from online sources to create a perfect storm of revenue declines for “old media” names like Gannett. While the firm is bouncing back from a fundamental standpoint, it’d probably be wise to steer clear of this stock’s intermediate price hiccups until it can further diversify its revenue stream.
Gannett at least realizes that changes need to be made for the company to remain viable. Management has been adding television properties and online services to its portfolio of businesses, more than doubling its non-publishing revenues in the last decade. The real surprise may be just how important Gannett’s publishing business still is.
New ways of monetizing content -- such as Apple’s (AAPL) iPad and its forthcoming Newsstand -- are providing companies such as Gannett with a way to market and sell its content to users who are willing to pay for recurring subscriptions on their digital devices. Execution remains the part that traditional publishers such as Gannett continue to grapple with. That said, if management can capitulate to the demands of the market, the company has a chance to make meaningful improvements to its business.
In the meantime, management doubled the firm’s quarterly dividend last week, hiking its payout to 8 cents per share.
As of the most recently reported period, Gannett was a holding in Warren Buffett's portfolio.
The past few years have been a rollercoaster ride for shareholders of Huntington Bancshares (HBAN), last week’s biggest dividend increaser. Huntington was among the worst of the regional banks during the recession, the result of an incredibly poorly timed acquisition that ratcheted loan write-offs just as the bottom was falling out of the housing market. The firm slashed dividends, diluted equity and took on TARP funds just to stay afloat during 2008 and 2009.
But today’s Huntington is a substantially different firm. The company was able to shore up its capital base during the recession, paying off TARP borrowings late last year, and making steps toward restoring its dividend payouts. While the firm’s dividends are still short of their pre-crisis levels, so is the firm’s share price. Last week’s 300% dividend increase brings Huntington’s yield to 2.65% and finally bodes well for shareholders.
A revamped (and largely written off) balance sheet means that Huntington is once again able to report net margins that are more in line with peers. Increased lending tolerances should keep the company from repeating history.
Huntington shows up on a recent list of 5 Bank Stocks Ready to Rocket.
As a transportation logistics company, Landstar System (LSTR) is focused on helping its customers move their freight shipments by any means necessary. More often than not, it’s through trucking -- over-the-road truck freight provides more than 90% of Landstar’s sales. With fuel prices on the rise, Landstar also provides options for clients who need air, sea, or intermodal freight forwarding.
Because Landstar is a third-party logistics firm, the company doesn’t actually own any of the infrastructure that moves its clients’ freight around the world. Instead, Landstar partners with truck owner operators and outsourced freight shippers who bare the balance sheet risks of an otherwise capital-intensive business. That means that Landstar’s costs are generally linearly correlated with its sales – an attractive feature when freight volumes are low.
Last week, Landstar announced a 10% increase in its dividend. While the firm’s low yield hardly qualifies it as an income name, investors shouldn’t ignore the signal a firm throws out when it’s willing to part with cash in this unfriendly market.
Landstar is one of TheStreet Ratings' top-rated transportation infrastructure stocks.
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.