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Dividend Stocks: Deere, Heinz, UnitedHealth - 16677 views
By Jonas Elmerraji
Posted on June 4, 2010
Last week’s dividend increases may have been on the sparse side, but dividends have been a key topic as Congress has pushed for BP (BP) to cut its dividend to free up cash for the oil spill cleanup. But despite the scolding BP’s CEO Tony Hayward is getting on Capitol Hill, BP’s management is reportedly being defiant on the issue, choosing instead to keep the company’s 8.56% yield in tact.
While drama unfolds over dividends, most income-focused investors are actually investing in dividend stocks to avoid the drama of capital appreciation in a volatile market. Instead, dividend stocks provide steady checks to investors who can find the right payers -- and for companies that opt to actually increase their payouts to shareholders, the benefits are even more impressive.
Dividends aren’t the only upside to investing in stocks that pay out cash to their investor base. 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% each and every year, according to a study from NDR.
Companies that are willing to part with cash in arguably tough times are worth a second look. Here’s a peek at some of the companies that increased their dividends last week.
Heinz (HNZ) may be known for its ketchup, but this packaged foods giant actually generates the majority of its sales through a number of other non-condiment products, including frozen food, soups, and infant nutrition. The company increased its dividend last week, upping its payout to 45 cents per share.
It’s not surprising that Heinz is returning value to shareholders through a dividend hike — despite significant competition from private labels, the company’s brand portfolio manages to maintain a loyal pool of consumers who keep demand relatively stable regardless of price. And as the company sees increased consumption from consumers in 2010, it’s keeping its industry-high payout ratio in tact. While Heinz has a slightly less attractive balance sheet than others, the company generates enough cash to keep its debt under control. Ultimately, investors can expect Heinz’s record of shareholder value to keep up this year.
That’s the premise that investors such as American Funds’ Income Fund of America (AMECX) are counting on. As one of Heinz’s largest institutional holders, the fund collects a tidy payout from the ketchup king each quarter. Among Income Fund of America’s other holdings are Boeing (BA) and Home Depot (HD).
The past couple of years have been tough for industrial manufacturers such as Deere (DE), who’ve seen their customers get squeezed amid decreased consumption and a seized credit market. With agricultural production back on the rise, Deere could see its enormous stake of the farm equipment market pay off this year -- but don’t count on the same bullishness from its construction customers.
The biggest growth prospects for Deere right now are in the emerging markets, particularly in Latin America, where agriculture is essential and the company already has a presence. Those potential tailwinds were enough for management to hike its dividend payouts last week by 7.1%, inching the company’s quarterly check to investors up to 30 cents per share.
From a financial perspective, Deere’s better-positioned than many other industrial manufacturers to ride out any softness in its core business. But because many of its credit customers have hit hard times lately, it faces a bit more risk than most. That could pan out to provide investors with nice capital gains too when the financials shake themselves out in the coming months and years.
Among Deere’s fund investors is the Blackrock Equity Dividend Fund (MADVX), a $7.9 billion fund that holds Morningstar’s coveted 5-star rating. The fund also owns positions in Exxon Mobil (XOM) and AT&T (T).
By far, the biggest dividend increase last week came from UnitedHealth Group (UNH), the health insurance giant that covers more than 70 million Americans. The company hiked its annual payouts 316.7% to 12.5 cents per share. And while that increase is amplified by the company’s annual dividend frequency, it’s no less significant for investors who stand to collect the 1.64% yield right now.
UnitedHealth is one of the biggest players in the health insurance field and benefits from the sheer scale of its network. It leverages that size to minimize costs and court jumbo-sized accounts from employers looking to switch providers. While 2010’s health care reform bill does pose some questions about UNH’s business, it could end up giving the company a net positive effect as Uncle Sam helps foot the bill to reduce the number of uninsured in the U.S. Still, this stock’s dividend pales in comparison to the likes of more income friendly industries.
Regardless, UNH has the interest of the Fidelity Low-Priced Stock Fund (FLPSX), which also owns shares of Bed Bath and Beyond (BBBY) and Safeway (SWY) right now.
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.