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7 Stocks Shoveling More Cash to Investors - views
BALTIMORE (Stockpickr) -- To heck with the “summer doldrums.” Believe it or not, plenty of companies are trying to shovel more cash to investors in May.
And with treasury rates plunging to record lows this week, those dividend payouts are looking more attractive than ever. There’s a big disconnect between firms’ fundamental performance and the price of those same firms’ shares right now. Even though corporations are earning bigger profits than they ever have before, the S&P 500 has still managed to drop by more than 7.2% in the last month. That’s part of the reason why so many stocks are ratcheting up their dividend payouts.
Today, more S&P 500 components pay a cash dividend than any time in the last two decades. And they’re paying out more cash than ever before: Each hypothetical share of the index pays out more than $29 in cold hard cash at last count.
Dividends are also a big deal for investors in search of the biggest total returns: 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 six stocks that hiked payouts in the last week and change.
New Dividend: 27.5 cents quarterly (per share)
Dividend Percent Increase: 10%
Current Yield: 2.32%
Viacom (VIA.B) announced a 10% hike to its dividend payout last Wednesday, ratcheting its quarterly dividend to 27.5 cents per share -- the first dividend hike the for the firm after initiating a dividend payout this year. Viacom owns a portfolio of cable networks that includes MTV, Comedy Central and Nickelodeon as well as Paramount, a motion picture studio with a massive vault of film properties.
That positioning is important -- it gives Viacom unfettered access to lucrative younger audiences and cross-promotional opportunities between different units to market films and expand franchises from the small to big screens. Investors shouldn’t overlook Viacom’s intellectual property either; content licensing deals could eventually be a much bigger source of revenues for the firm.
Solid income-generation abilities and a reasonably cheap price make this stock a solid portfolio addition, even if it’s not the highest yielder.
New Dividend: 52 cents quarterly (per share)
Dividend Percent Increase: 7.3%
Current Yield: 3.87%
Last week, in I said that H.J. Heinz (HNZ) was one of five food stocks that was likely to hike its dividend payouts. That prediction turned out to be right; that Thursday, management announced a 7.3% dividend hike that brought the firm’s payout to 52 cents per share.
Heinz may be best known for its ketchup, but this food firm also manufactures everything from baby food to Ore-Ida frozen French fries. Emerging markets look like a good prospect for HNZ, especially because it’s so saturated in developed markets right now: only a third of Heinz’s overseas sales come from emerging markets currently. With a huge dividend yield and plenty of cash generation ability, investors should turn to Heinz as a core income holding in 2012.
New Dividend: 40 cents quarterly (per share)
Dividend Percent Increase: 100%
Current Yield: 1.08%
It pays to be fashionable. Apparel stock Ralph Lauren (RL) doubled its quarterly dividend payout to 40 cents last Tuesday, weighing in as the biggest-percentage increase on our list today. While the move still leaves RL’s yield around 1%, it’s a signal that management is willing to start throwing its billion-dollar net cash position at investors this year.
But let’s be honest: No one is buying Ralph for its dividend payout at this point.
This firm has plenty of brand cachet, a factor that it shares with a lot of the more successful apparel and accessory brands of the last several years. While the part of the market that RL targets is particularly susceptible to economic contractions, consumer spending numbers haven’t showed enough holes yet to be concerned about an end to RL’s earnings growth.
That said, I still wouldn’t recommend this stock to income-seekers.
New Dividend: 21 cents quarterly (per share)
Dividend Percent Increase: 16.7%
Current Yield: 2.66%
TE Connectivity (TEL) shareholders got a first hand taste of the firm’s dividend generosity on Wednesday when shares went ex-dividend. The firm increased its payout for the quarter by 16.7% last week, bringing it to 21 cents per share. More significant, this week’s payout marks the first post-recession raise for investors counting on dividend payouts to tack returns on in 2012.
TE Connectivity is the biggest maker of connectors in the world, a title that doesn’t sound particularly impressive at first -- but it is. TEL’s connectors are used in almost every industrial application conceivable, a factor that’s helped the firm generate ample free cash flows over the last several years.
That cash should keep the dividends flowing for the foreseeable future. TEL makes a good secondary holding for income investors in search of industrial exposure.
New Dividend: 27 cents quarterly (per share)
Dividend Percent Increase: 8%
Current Yield: 1.81%
Agricultural firm Bunge (BG) is another firm that’s increased its dividend payouts toward the end of May. The $8.7 billion firm increased its cash payouts to shareholders by 8%, raising its dividend yield to 1.8%.
Bunge acts as a middleman between farmers and consumers, processing raw agricultural commodities on one side, and supplying farmers with products like fertilizer on the other. That middleman status comes with strings attacked -- the biggest is the fact that when BG’s business becomes too profitable, farmers and retailers may opt to find ways of doing business that let them keep more of that money.
So while Bunge’s dividend hike is a great move for existing shareholders, paper-thin margins and a relatively small yield make it a less attractive name for income investors in 2012.
New Dividend: 9 cents quarterly (per share)
Dividend Percent Increase: 12.5%
Current Yield: 1.01%
Donaldson (DCI) increased its dividend payout by 12.5% last week, bringing its own quarterly shareholder check to 9 cents per share. Donaldson manufactures filtration products that are used in truck engines, turbines, and even disk drives. Like TE Connectivity, Donaldson’s business doesn’t sound particularly exciting, but that’s why it’s an attractive industrial name.
Efforts to lower production costs should lead to some margin growth for DCI over the mid-term, especially if heftier emission regulations lead to more filtration demand among its customers. While this stock clearly isn’t a high yield income name, it’s an interesting niche industrial that’s could play a supporting role for investors who want industrial exposure over income generation.
Portland General Electric
New Dividend: 27.5 cents quarterly (per share)
Dividend Percent Increase: 1.89%
Current Yield: 4.31%
Oregon-based power and gas utility Portland General Electric (POR) may not be the biggest dividend hike of the week on a percentage basis, but that doesn’t mean that this small-cap firm doesn’t pay out substantial cash -- it does. A paltry 1.89% dividend increase last week brings the firm’s dividend yield up to a hefty 4.31%.
The firm isn’t merely a regulated utility -- it’s also a generation firm with 2,700 megawatts of capacity spread across a handful of plants in the Pacific Northwest. Being a regulated utility gives Portland General regular, predictable income streams, while power generation adds some a speculative angle to the firm’s earnings power (generation profits are largely commodity-driven, after all). That’s an attractive combination for income investors looking for something other than the standard large-cap utility stock.
A reasonable balance sheet and an impetus on dividend hikes make Portland General a solid core holding for income investors in 2012.
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.