By Jonas Elmerraji
Posted on Sept. 3, 2010
Dividend yields continue to creep up in the second half of 2010, spurred on by strong earnings performance (and subsequent dividend increases) and equity prices that are under siege.
Of particular interest is the uptick in small-cap dividend hikes that last week brought. Of the seven companies that announced higher payouts to shareholders during the last full week of August, all but one had market caps of less than $2 billion. As companies of all shapes and sizes start passing more cash to shareholders, investors should find comfort in being bullish once again.
With that in mind, it’s time to take a closer look at few of the companies that announced dividend increases last week. Now is as good a time as ever for dividend plays, with yields as high as ever on some of the world’s most attractive stocks.
Historically, dividend stocks are a good place to be. 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. And right now, companies that are willing to part with cash in arguably tough times are worth a second look.
That said, here’s a look at this week’s dividend stocks.
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The sole exception to the slew of small-cap stocks that raised dividends was Altria (MO), the $47.5 billion tobacco giant. Altria announced an 8.6% dividend increase last week, raising its quarterly payouts to 38 cents per share -- a generous 6.7% yield right now.
In the past few years, Altria has distinguished itself as a leader in strategic transactions. The company divested its profitable subsidiaries, preferring instead to focus on its core business of U.S. tobacco. In doing so Altria spun off Philip Morris International (PM) and Kraft (KFT), generating mountains of cash as investors swooped in to buy shares of both businesses. While there are significant regulatory and market-based challenges in U.S. tobacco, Altria’s positioning as the biggest player in the industry creates significant advantages that essentially solidify the company’s ability to pay out substantial yields for the foreseeable future.
At least that’s the hope of investors like the Vice Fund (VICEX), a fund that invests solely in “sin stocks” -- companies with offerings that some consider to be of questionable morality. Other sin stocks in the Vice Fund’s portfolio include Diageo (DEO) and Wynn Resorts (WYNN).
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The yields may not be as high at uniform rental firm G&K Services (GKSR), but the company’s working to change that. Last week, G&K’s management announced a 26.7% dividend increase, upping its payouts to 9.5 cents per quarter. That gives the company a 1.81% yield at current price levels.
G&K is definitely the underdog in the uniform rental business. With major competitor Cintas (CTAS) eking out higher margins and more than four times as many customers, the onus is on G&K to prove to investors that the firm can be a standout in tough economic times. And indeed, despite signs of recovery showing in nearly every industry, the uniform rental business continues to face major issues.
All of that said, the company’s ability to generate substantial cash flows and a strong balance sheet should keep income investors satiated.
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Restaurateur Bob Evans Farms (BOBE) was another company that hiked its dividend payouts last week. The company increased its payouts from 18 cents to 20 cents per quarter, an 11.1% increase. That’s actually a pretty substantial dividend payout for a restaurant chain. With a yield of 2.96%, Bob Evans’ payout to shareholders is actually nearly double the dividend yield averaged by the rest of the industry.
But being different is nothing new for the company, which owns and operates 715 full service Bob Evans and Mimi’s Café restaurants and produces a line of food products sold direct to grocery consumers. Despite significant headwinds for restaurant operators in recent years, Bob Evans was able to maintain significant top-line growth and maintain a respectable level of profitability.
With a better financial position than most of its industry, Bob Evans’ shareholders should continue to expect impressive performance from the company.
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For the rest of this week’s dividend stocks, check out the Dividend Stocks portfolio on Stockpickr.
And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.
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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.
