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8 Stocks With Recent Dividend Increases - 23673 views
BALTIMORE (Stockpickr) -- A slew of stocks are increasing their dividend payouts to shareholders this week, a welcome move given the sideways price action that the broad market has been giving investors for the past few weeks. All told, 33 stocks announced dividend increases this past week, a strong turnout even for the tail end of earnings season.
Of course, 2011 is turning out to be a solid year for dividend hikes in general. Already this year, dividend increases have outpaced last year's total dividend increase figure in absolute dollars -- and while recent hikes still have us below pre-recession payout levels, it's clear that income investors are slowly regaining ground.
That's a big deal right now, particularly given the return impact of dividend stocks.
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On a total return basis, dividend stocks significantly outperform their non-payer peers as a whole. 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.
Each week, we take a look at the stocks that are hiking their payouts. Here's a look at some of several stocks from our list of dividend-increasers for the week.
Shares of IT management software firm CA (CA) are off to a somewhat slow start in 2011. Year-to-date, the stock has dropped nearly 6%.
But while the market isn't proving favorable to CA, the stock's management is making moves to reward its shareholders with a massive share buyback program and a consistent dividend payout. Last week, CA raised its dividend by 25%, bringing the stock's payout to a quarterly five cents per share.
CA has long been a major player in the enterprise IT market, providing all manner of technology products to its customers. For CA, though, the real cash cow is its exposure to the mainframe management market, which currently accounts for around 60% of total sales. Because of the capital-intensive nature of the mainframe business, growth tends to be hard-won -- particularly in recessionary economies.
In CA's favor is the fact that much of the nation's enterprise IT infrastructure is starting to get dated, and IT departments are planning on ramping up spending now that it's economically feasible to do so. With a solid balance sheet carrying around a $1 billion net cash position, expect CA's dividend payout to remain economically feasible as well.
FactSet Research Systems
FactSet's short interest ratio of 10.3 means that short-sellers are positioned decisively against shares of this financial data firm. That sort of ratio suggests that it could take more than two weeks of buying activity for short sellers to cover their positions.
And despite the high short interest, there are a number of attractive attributes behind this stock. With deep margins and major recurring revenues enjoyed by FactSet's research subscriptions, the company's ability to generate substantial free cash flow shouldn't be in question.
While competition is fierce in the industry (with FactSet playing second fiddle to the likes of Bloomberg and Reuters), the services that FactSet sells are hardly mutually exclusive -- after all, investment professionals want all the data they can lay their hands on. The company increased its dividend payout by 17.4% last week, a move that brings its dividend yield to 1%.
Timken (TKR), one of TheStreet Ratings' top-rated machinery stocks, is another firm that increased its dividend payout this past week. The company, which manufactures friction management solutions used in power transmissions, has been seeing strong fundamental growth in 2011 -- even if shares have mostly fell in lockstep with the broad market's gains this year.
Still, those increased earnings have spawned management's desire for a dividend hike, and investors are now entitled to an 11.1% increase in their dividend payouts as a result.
While Timken's yield is hardly mind-blowing at 1.59%, investors should take note of the fact that Timken hasn't missed a payout in more than 350 consecutive quarters.
Canadian Pacific Railway
Calgary-based Canadian Pacific Railway (CP), one of TheStreet Ratings' top-rated railroad stocks, is just the latest in a line of railroad stocks that have increased their dividends this quarter on the heels of increased shipping volumes and increased efficiency. The company increased its payout by 11.1% last week.
CP's move has been largely predicated on the increase in commodity costs that investors have been taking note of for the past year. Not only do increased commodity costs mean increased volumes from mining firms that use CP's rails to ship goods such as coal and grain, but the resulting increase in oil costs means that the substantially better cost-efficiency of train transportation is becoming a viable alternative for goods that are traditionally shipped by truck.
The fact that CP has improved its operating ratio is certainly a good sign for investors, who are reaping bigger EPS as a result -- but it's also crucial for the railway itself as the firm attempts to compete for capital with leaner, meaner peers such as CSX (CSX). Right now, a 2.01% dividend yield makes CP a solid secondary holding for investors who want exposure to rail transport while staying diversified away from the U.S. dollar.
2011 is turning out to be a solid year for storied department store operator Macy's (M). The company is sitting on 16.6% gains year-to-date as large increases in consumer spending have finally flowed to the firm's income statement in a meaningful way. Management announced a 100% dividend increase last week as a result, making Macy's one of the largest dividend hikers of the week.
For Macy's, the most attractive segment of its business right now is in the higher-end of the spectrum, as wealthier Americans not being hit as hard by inflation continue to ramp up their consumption. Expect outsized growth from the company's Bloomingdale's brand as a result.
Top-line growth is only part of Macy's earnings puzzle, though -- the company has also made considerable steps to increase efficiency and lower its costs, two areas in which this department store giant was lagging in previous years.
While the dividend double in Macy's is an auspicious sign for investors, beware of the stock's heavy debt load if you're considering a position. Remember, Macy's remains very beholden to consumer spending shifts; dividends will be the first thing to get slashed if a major pullback in spending comes our way.
Macy's, one of the top holdings of David Tepper's Appaloosa Management, shows up on a recent list of Cramer's Stocks to Watch as Oil Prices Fall.
As a diversified insurer, Assurant's (AIZ) offerings run the gamut from property-casualty to health to more complex financial instruments. That wide range of products have proven to be a mixed bag for the company, which has struggled with keeping up its margins as poorly underwritten insurance risks flow through to the stock's income statement.
Not surprisingly, though, Assurant is a firm that enjoys particularly good times when times are good (and capital is abundant) -- and investors shouldn't forget about this stock's upside in the face of economic growth.
Because of its focus on niche insurance areas, Assurant doesn't face the massive competition that's commoditized so many of its peers' products in recent years. That said, the lack of price discovery in its offerings probably allows Assurant's pricing to live in a bubble more than it should. While the firm's 12.5% dividend hike is an auspicious sign, I'd suggest steering clear of this firm until it can get its margins more consistent and wring out some balance sheet risks.
Like most of its peers, Cablevision Systems (CVC) is a full-blown multimedia firm, not just a cable operator. The company does operate video service for around 3 million customers, but it's also the parent company of several cable networks, and a relatively new newspaper business (much to the chagrin of shareholders).
Because Cablevision's primary cable television service region focuses on the New York metro area, the firm benefits from an extremely dense population of higher-spending consumers. As Cablevision expands its focus on its core cable business, securing that demographic should be a major boon to the company's income generation abilities.
Challenging those abilities is a less than attractive balance sheet that currently sports a net debt load in the $11 billion range. While the firm's 20% dividend hike is a welcome move for current shareholders, it'll do little to attract new blood to the stock.
Consumer products maker Newell Rubbermaid (NWL) is seeing fairly flat performance in 2011, but that could soon change as relative strength in the consumer goods space starts to ramp up this month. With a handful of household names in its robust brand portfolio, Newell is one of the best-positioned stocks to take advantage of that trend. And because the firm's brands aren't league leaders just yet, they've got further room to grow without management needing to get particularly creative.
Newell's balance sheet is reasonably strong, and cash flows should be able to cope with the 60% dividend increase that management announced this past week. The move brings Newell's dividend yield to 1.75% -- not a core dividend holding, but still a stock worth gaining exposure to as a second string to an income portfolio.
For a list of stocks increasing their dividends recently, 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.