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7 Stocks Dishing Out Bigger Dividends - 12492 views
BALTIMORE (Stockpickr) -- As expected, earnings season is sparking a slew of dividend increases again this week. 2011 has already been the best post-recession year for dividend increases, and the fact that companies continue to hike payouts is a positive development for investors -- particularly as volatility remains a concern for those pinning their hopes on capital gains.
Adding dividends to the return equation means that strong earnings aren’t as easily marred by a shaky market.
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That’s not all. Historically, dividend payers also provide larger capital gains than their nonpayer peers. For long-term investors, the statistics are impressive:
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 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.
Manufacturing firm Honeywell (HON) has its hands in a number of businesses – from manufacturing aircraft components to making home thermostats. A diversified basket of businesses means that Honeywell’s consolidated revenues are less subject to headwinds in the individual markets that it operates in, and the firm’s scale means that it’s able to compete against niche players. Last week, management announced a 12.03% dividend increase, bringing the firm’s current yield to 2.76%.
Honeywell has been able to find organic growth in recent years by focusing resources on the areas of its business (such as automation and energy) that have been in high demand and acquiring complementary businesses when they’re accretive to the company’s strategy. That said, Honeywell wasn’t exactly spared from the recession; heavy exposure to both energy prices (Honeywell’s products are used to refine petrochemicals) and the aviation industry in 2008 knocked revenues lower, and this is a large ship to turn around. Sales remain just below pre-recession levels at this point.
But it’s worth noting that share prices do as well. Like many large industrial names, Honeywell took 2008 as an opportunity to shore up its operations, pay down debt and focus on expanding margins. The new, svelte balance sheet makes this firm much more attractive right now. For income investors, Honeywell is a solid core holding.
Emerson Electric (EMR) competes with Honeywell in some of its businesses, so it shouldn’t be a surprise that these firms are competing on their dividends as well. Emerson is a technology manufacturer that provides solutions for a number of industrial markets, automation and network power among them. The firm announced a 15.94% dividend increase in the past week, ratcheting its yield up to 3.09%.
Just like Honeywell, Emerson underwent major changes during the recession, acquiring cheap businesses and expanding its net margins to double digits. The key difference is the fact that Emerson has actually been able to eclipse its prerecession revenues at this point -- a move that’s all the more attractive at these new, higher margins.
For Emerson, growth lies abroad. The firm has been working hard to build out its operations in emerging markets, hoping to provide its infrastructure as countries develop and retool their industrial bases. So far, the strategy is working out as planned; nearly one-fifth of Emerson’s revenue came from Asia last year. A manageable debt load and a history of passing cash onto shareholders makes the firm’s latest dividend hike a sustainable one. Like Honeywell, this name makes for a good core income name right now.
Apparel maker V.F. Corp. (VFC) has been having a stellar year in 2011: shares of the firm have rallied more than 63% so far this year. For V.F. Corp. -- which owns a huge portfolio of clothing brands, including Lee, Wrangler, The North Face, and Nautica -- the story doesn’t stop at capital gains. This company has also been a consistent dividend payer, hiking its payout by 14.29% last week.
Because V.F. Corp. is one of the largest and best diversified apparel stocks, its margins are more stable than most peers. In spite of its size, though, international sales only make up around 35% of VFC’s total revenues. That’s something that management has been working to correct as they increase their focus on retail stores.
While V.F. Corp. currently yields 2.04%, for investors who bought at the beginning of January, yields on their cost basis are actually closer to 3.5%. That’s worth keeping in mind as this stock makes moves to capture earnings growth.
Investors who want exposure to consumer discretionary spending should consider a stake in V.F. Corp. Excellent cash flow generation should keep spurring this stock’s dividend payout higher.
Whole Foods Market
Whole Foods Market (WFM) is another name that’s sitting on the end of an impressive rally in 2011. Shares of the natural foods grocer have rallied just shy of 37% year-to-date as the firm’s financial performance outpaces analysts’ muted expectations. Whole Foods’ positioning as a higher-cost discretionary supermarket chain had much of Wall Street worried in the wake of the recession -- after all, with consumer purse strings tightening, wouldn’t households opt to trade down?
By and large, that argument didn’t pan out nearly as dramatically as feared during the recession. Instead, consumers have proven willing to continue spending more on their food. And as the economy stabilizes, Whole Foods has been attracting a wider demographic of shoppers to its stores. Conventional grocers have taken note of that trend, ramping up the competition with capital-intense store remodels and a bigger selection of natural foods. Still, the strength of Whole Foods’ brand has helped to company to compete successfully against bigger chains.
Even though Whole Foods is the largest dividend increaser on our list, with a 40% hike in its payout, the increase is mostly window dressing at this point. The increase is so large because WFM’s payout was so small to start with; now, the firm pays a 0.58% yield.
Whole Foods is one of TheStreet Ratings' top-rated food and staples stocks.
Neighborhood shopping center REIT Kimco Realty (KIM) owns nearly 1,000 properties spread throughout North and South America -- combining to 138 million square feet of leasable space. Those metrics make Kimco one of the biggest real estate investment trusts of its kind.
Last week’s dividend hike also makes Kimco the highest-yielding stock on this week’s list: The firm’s 5.56% increase puts its yield at 4.36%.
While such a massive portfolio of properties does provide Kimco with certain scale advantages, it also provides some drawbacks. When the floor fell out of the market, exposure to less robust neighborhood shopping center locations meant that vacancies became an issue. REITs are typically fairly insulated from actual real estate prices; long-term triple-net leases make them more like income generation tools than ways to get exposure to the property market. That argument falls apart when tenants break leases and REITs are forced to release at lower market rates.
That said, Kimco’s portfolio has largely stabilized at this point, and Kimco has been actively working to divest itself of the riskier investments on its balance sheet. The company has been able to strike a healthy balance between paying down debt and paying out earnings to shareholders -- that makes Kimco an attractive retail REIT to close out the year.
The 6.5 million ounces of gold Newmont Mining (NEM) pulled out of the ground last year were enough to rank the firm as the second-largest gold producer in the world. That scale, plus below-average extraction costs, has made Newmont an attractive name for investors looking to get exposure to gold as an alternative asset class.
So has the spread between gold miners and spot gold prices that’s emerged in the last few months. With investors still not fully pricing in increases in the value of gold, miners are generally looking cheap right now. Newmont is one of the best ways to play the disconnect because the firm actually offers a dividend that’s linked to the price of gold.
That may sound like a crazy gimmick, but it makes fundamental sense for the company; as long as it’s able to get higher prices for the gold it sell, shareholders may as well share in the profits.
To that end, Newmont announced a 16.67% dividend increase that brings its total payout up to 2.02%. For investors looking for exposure to gold right now, Newmont’s novel dividend policy makes it the most worthwhile mining stock out there.
Newmont shows up on a recent list of 6 S&P 500 Stocks Poised to Outperform the Index.
Penske Auto Group
Penske Auto Group (PAG), one of the top-yielding specialty retail stocks, has been riding an upswing in auto sales in 2011, buoyed by record-low interest rates and credit that’s been more freely flowing of late. Penske is a unique super-dealer in that its exposure is heavily weighted toward luxury and import brands (which afford the firm higher margins), and around half of the firm’s dealership locations are located in the UK.
That international exposure provides Penske with a set of consumers who are demographically similar to U.S. car buyers, but who are structurally separated thanks to currency and economic differences. As attractive as new car sales have traditionally been for Penske, one major growth avenue is the parts and service business. While it’s still a comparatively smaller chunk of Penske’s revenues, the high margins justify the effort to expand it.
One that management has been expanding consistently is the firm’s dividend payout. In the last week, the firm announced a 12.5% increase that brings its payout to 9 cents per share -- a 1.67% yield at current levels. While the sub-2% yield is nothing to write home about, Penske’s status as a best-in-breed dealer makes it worth considering for investors who need industry diversification in their income portfolios.
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.