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Dividend Hikes Ramp Up With Earnings Season - 16325 views
BALTIMORE (Stockpickr) -- While corporate earnings are the primary focus of investors each earnings season, there’s no denying that dividend actions are a significant part of the Wall Street action each quarter. With earnings season now underway, market participants should expect a slew of dividend data -- namely announcements and increases -- to flood the market.
That’s a very good thing for income investors, particularly as the broad market continues to churn sideways.
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Statistics show that it pays to buy dividend stocks. 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. That said, not all dividend stocks are created equal. While that statistic applies to all companies that pay dividends, the companies that increase those dividend payouts over time are even better.
Each week, we take a look at income stocks paying out cash to investors. This week, we’ll focus on firms increasing their payouts. With that, here’s a look at five dividend payment boosts.
2011 is already proving to be a powerful year for TJX (TJX), a $20 billion discount apparel and home fashion retailer. Shares of the company have rallied more than 15% year-to-date despite flattening analyst sentiment on consumer sales. That price rally has been fuelled by strong fundamentals -- strong enough to justify the company’s 26.7% dividend hike. That corporate action brings TJX’s total quarterly payout to 19 cents per share.
TJX is one of the biggest discount retailers in its niche, selling to consumers through store brands like T.J. Maxx, Marshalls, and HomeGoods. All told, the company operates around 3,000 stores in North America and Europe. The company’s market positioning actually proved to be its biggest asset as the world economy contracted in 2008 and 2009 -- with its focus on upmarket brand names at deep discounts, cost-conscious consumers traded down to TJX’s stores. As demand perked up in stores, those high-end suppliers were clamoring to unload inventory on off-price retailers such as TJX, which happily increased the quality of their wares.
Today, the business climate is slightly less preferential for TJX. Consumers are trading up in the retail space once again, and suppliers are less desperate to unload stock.
Despite that shift, investors should continue to expect growth from the company, albeit at a less breakneck pace. Ample balance sheet liquidity should ensure that dividends stay sacred.
PNC Financial Services
Banking stocks have been a mixed bag this year, as the gaps between firms widen. The industry’s leaders and laggards are reminding investors that the industry isn’t well-represented by performance in any single stock. That’s proving to be a good thing for the leading group -- by and large, they’ve been significantly hiking their dividend payouts to commensurate with fundamental performance.
Among that group is PNC Financial Services (PNC), which just announced a 250% dividend increase bringing its quarterly payout to 35 cents per share.
PNC was one of the many better-equipped banks that bought out beleaguered peers at fire sale prices in late 2008, and the company is currently in the process of reaping the rewards. For a company that’s characterized by growth through acquisition, PNC’s National City purchase is already turning out to be one of their better purchases. The subsidiary’s loan performance is up, and expenses are down, yielding a much stronger loan portfolio that PNC added to its balance sheet on the cheap.
Right now, PNC is a well capitalized bank with enviable margins. By focusing on lending operations over excessive exposure to the slippery slope of capital markets operations, it looks like management is in tune with shareholders’ needs for a stable, traditional bank. The stock’s 2.26% yield should continue to court new buyers for shares.
Qualcomm (QCOM) is one of the established tech stocks that’s been leading the charge (unwittingly or not) to increase the dividend yield for Nasdaq stocks. That’s a good direction for the tech sector, which has previously been known for its lack of dividends; as investors continue to fret over the ebb and flow of the market, dividends should continue to curry favor.
And Qualcomm fits the profile of a dividend payer perfectly. With an entrenched position in the wireless technology business, Qualcomm is a major chipmaker for mobile phones and licenser of the technologies that allow wireless product to communicate. The feather in Qualcomm’s cap is its portfolio of intellectual properties that make CDMA phones work. That IP should continue to have a major smoothing effect on Qualcomm’s earnings numbers -- and its ability to generate the cash flow needed to pay and increase its dividends in the future.
Ingersoll-Rand (IR) is a diversified conglomerate that produces everything from HVAC and refrigeration systems to locks, security systems and golf carts. Even though those business lines are pretty diversified, the company’s overall exposure is largely concentrated on the construction business, which has continued to struggle under longer-term economic pressures.
The company has made moves to limit that exposure, divesting of heavy construction equipment and road paving divisions in the last decade, but they’ve made offsetting poor acquisition choices in recent years as well. Ultimately, the company’s free cash flow generation throughout the recession is indicative of its investment worthiness in this environment.
That said, even with a recent 71.4% dividend hike, investors trying to minimize exposure to the construction business should steer clear for now.
Ingersoll-Rand is a holding in Stockpickr’s most popular pro portfolio, that of Warren Buffett’s Berkshire Hathaway.
Last up this week, we have Idex (IEX), a mid-cap firm with a hand in fluid controls, fire and safety, and health sciences. While Idex’s portfolio of subsidiaries is similar in some ways to that of Ingersoll-Rand, the company’s exposure to business pressures couldn’t be more different. The lion’s share of Idex’s market exposure focuses on industrial and infrastructure spending, two areas that are seeing an upswing in cash right now.
Because of its focus on infrastructure products (like fire suppression tools and fluid controls for factories), IDEX’s international exposure is particularly compelling right now. The company generates half of its sales from overseas, a factor that should play in its favor if bearish calls on the dollar pan out.
A 13.3% dividend hike last week brings IDEX’s quarterly payouts to 17 cents per share.
Idex is one of TheStreet Ratings’ top-rated machinery stocks.
For the rest of this week’s dividend stocks, 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.