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7 Dividend Stocks That Want to Pay You More Cash - views
BALTIMORE (Stockpickr) -- 22.5%: That’s how much S&P 500 companies have hiked dividends in the past year. While investor anxiety remains ramped up in summer 2012, dividend payouts are clearly still growing at breakneck speed.
After all, companies need to do something with those record profits and cash holdings, right?
It’s not just a few firms that are fuelling that increase, either. Right now, a total of 402 S&P 500 components pay out dividends, the highest level since 1999. And history shows that’s having a major impact on investor returns right now.
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. With that, here's a look at seven stocks that hiked payouts recently.
New Dividend: 37.5 cents
Dividend Percent Increase: 25%
Current Yield: 1.74%
Agricultural firm Monsanto (MON) is first up this week. The firm hiked its dividend last Wednesday by 25%, increasing its quarterly payout to 37.5 cents per share. Monsanto is the standard bearer in the genetically modified crop industry.
The $45 billion firm engineers and sells genetically modified crop seeds and herbicides that are designed to increase yields and stave off threats like insects from farmers’ fields. Monsanto’s RoundUp brand also extends to the consumer market.
Monsanto’s business isn’t without detractors -- and the firm will need to fix the somewhat adversarial relationship it has with farmers before the original RoundUp-Ready seed trait reaches patent expiration in 2015. In the meantime, the dividend hike ratchets MON’s payout to a 1.74% yield.
Monsanto shows up on a recent list of 3 Ag Stocks Poised to Benefit From Drought.
New Dividend: 45 cents
Dividend Percent Increase: 0.9%
Current Yield: 3.4%
The smallest dividend increase we’re looking at from the last week comes from CME Group (CME), the firm behind four of the most well known derivatives exchanges in the world: CME, CBOT, Nymex and Comex. CME also owns the majority stake in Dow Jones Indexes. While CME’s dividend hike was small, it piled a 0.9% increase onto what was already a hefty payout.
The move hikes CME’s dividend to a quarterly 45 cents per share. That’s a 3.4% yield at current levels. In my view, investors looking for financial sector exposure should look no further than CME.
Illinois Tool Works
New Dividend: 38 cents
Dividend Percent Increase: 5.56%
Current Yield: 2.65%
Illinois Tool Works (ITW) is having a stellar start to 2012: so far this year, shares of the $27 billion industrial stock have rallied more than 22%. That’s more that double the ascent of the S&P 500 over that same period. And ITW’s latest dividend hike tacks on some extra performance to that number.
ITW owns 800 individual subsidiaries in 58 countries, a diverse group of divisions that are involved in everything from food and beverage equipment to auto parts to commercial construction. On Aug. 3, ITW hiked its dividend payout by 5.56%. The move wasn’t a total surprise -- ITW was one of the stocks that I talked about in "5 Industrial Stocks Poised for Bigger Dividends."
Investors should continue to expect solid performance from ITW in 2012.
New Dividend: 50 cents
Dividend Percent Increase: 6.38%
Current Yield: 2.7%
Another expected dividend hike came from Norfolk Southern (NSC), the $23 billion railroad stock that I highlighted as one of "5 Dividend Stocks Ready to Boost Payouts." A solid balance sheet, a low payout ratio, and a history of dividend hikes were all reasons to expect a hike from NSC -- and sure enough, management announced a 6.38% increase to its quarterly payout at the start of this month.
High commodity prices -- namely crude oil -- should continue to bode well for this railroad in 2012. The dividend hike means that NSC currently yields 2.7%...
New Dividend: 12 cents
Dividend Percent Increase: 20%
Current Yield: 1.33%
CBS (CBS) isn’t a dividend stock in the conventional sense – even after a 20% increase to its dividend, this stock still only yields 1.33%. But the fact that management is willing to part with more cash is promising right now, even if income investors aren’t going to be persuaded by its payout.
After all, CBS owns a deep portfolio of entertainment and media assets that consumers see every day, from its namesake TV network to pay TV channel Showtime, CBS Radio, publishing house Simon & Schuster, and King World Productions.
This stock was another one that we saw coming -- I talked about it June’s "5 Household Name Stocks Ready to Boost Dividends."
New Dividend: 17.5 cents
Dividend Percent Increase: 16.7%
Current Yield: 2.44%
Independent oil refiner Valero Energy (VLO) is another stock that’s enjoying some stellar performance in 2012. Shares have rallied more than 36% since the first trading day in January. The firm’s 14 refineries can process more than 2.8 million barrels of crude per day -- and the company also owns a massive ethanol business and a 1,000-unit gas station chain.
I’ve argued in the past that Valero is an integrated oil company without the most profitable part: the exploration and production arm. Still, a better refining infrastructure than you’d find at most peers means that VLO can expertly shave thin margins off of its business consistently. It also means that the firm generates enough cash to keep upping its dividend payouts.
The firm’s 16.7% dividend increase ratchets Valero’s yield to 2.44%...
As of the most recently reported quarter, Valero was one of T. Boone Pickens' favorite stocks.
General Growth Properties
New Dividend: 11 cents
Dividend Percent Increase: 10%
Current Yield: 2.38%
Finally, there’s General Growth Properties (GGP), a commercial REIT that owns interests in approximately 170 regional shopping malls across the U.S. After emerging from its 2009 bankruptcy, GGP has improved its portfolio of properties and started impressing investors once again. Even if the firm still has some challenges it needs to overcome in the next few years, it’s a very different company than it was pre-recession.
As a REIT, GGP rents out stores using long-term triple-net leases that keep volatile expenses like taxes, insurance, and maintenance off of GGP’s list of responsibilities. And the firm is obligated to pay out the vast majority of income to investors in the form of dividends. August’s 10% hike brings the firm’s payout to a quarterly 11 cents per share. That’s a 2.38% yield right now.
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.