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Dividend Stocks: Monsanto, Western Union, GE - 33445 views
BALTIMORE (Stockpickr) -- It’s been a good month for income investors, with the passage of the tax-cut extensions that hold the maximum tax rate on dividends down to historic lows of 15%. And the continued high threshold on dividend income means that some middle-class Americans won’t need to pay taxes on dividends at all.
That’s a very different scenario than investors could have faced: With the expiration of those tax cuts, the top tax rate on dividend income would have ballooned to nearly 40%.
Clearly, the move to extend those cuts is having a palpable effect on the stock market because it means that companies can continue to pay lower yields that pass more money through to investors. Without it, many investors would likely have pulled money out of dividend-payers and moved on to more tax-favorable instruments.
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Income investors may also be able to take advantage of the capital gains tax extensions that came as part of the bill. You see, income stocks are historically the best of both worlds: 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.
Right now, companies that are willing to part with cash in arguably tough times are worth a second look. And while companies that pay dividends are great, the companies that increase those dividend payouts over time are even better.
Each week, we take a look at companies that are actively increasing their dividend payouts to shareholders. Without further ado, here’s a look at this week’s dividend stocks.
Shares of Monsanto (MON) rallied 4.1% yesterday following a favorable outlook at the Bank of America Merrill Lynch Global Industries Conference, and news that the USDA had completed an environmental impact study on the company’s biotech alfalfa offering. The push comes just a week after the company announced it was increasing its dividend by 5.7% to 28 cents per share.
Monsanto is one of the biggest players in the global agrichem business, providing proprietary brands of seeds and herbicides to farmers. Fuelling that business is a well funded research and development group that’s been leading the charge toward creating biotechnology trait packages for crops that increase yields and make them impervious to industrial herbicides used to kill nearby weeds. Already, the firm has a major hold on the U.S. agricultural industry, and inroads are being made in developing countries where improved crop output is a high priority.
With deep margins and a respectable cash flow engine, this stock should find its dividend payouts relatively safe in the future. That’s the hope of Monsanto shareholders like the Vanguard PRIMECAP Fund (VPMCX), which owns a large stake in the company, alongside positions in FedEx (FDX) and Google (GOOG).
Western Union (WU) has had a relatively tepid 2010, with shares essentially flat for the year. While volatility moved shares significantly lower by the summer, the stock hasn’t seen the same swings to the upside. Part of the problem has been the global recession, which cut down on payment volume in the company’s already low-margin international segment. But while the company share price won’t be attracting any momentum investors, a 16.7% dividend increase should at least get the attention of some income investors in 2011.
Western Union has built its business on making it easy for consumers who lack traditional banking services to transfer money. With a network that spans 400,000 agents in more than 200 countries, the firm is one of the few that enjoys the scale needed to make international money transfers effective.
Western Union does face competition form its main rival, MoneyGram (MGI), the firm with which WU enjoys a relative duopoly in the cash transfer business. That said, Western Union’s financial situation makes it the clear winner for shareholders, particularly given its latest dividend hike.
In the most recent reporting position, John Griffin at Blue Ridge Capital reduced the fund's stake in the stock by 46%, leaving its position in Western Union at 1.8% of the total portfolio, while Mark Hillman at Hillman Capital reduced his fund's position by 8.55%, leaving the position at 4.65% of the total portfolio.
For investors in stalwart blue-chip General Electric (GE), 2010 has been a year of nearly 20% capital gains and an impressive 3.15% dividend yield. But despite increases in share price, that yield is growing too thanks to the 16.7% dividend hike the company announced last week, bringing its total quarterly payout to 14 cents per share.
With the divestiture of a large part of its stake in NBC Universal, GE is going back to basics with its business strategy, building innovative technologies and developing infrastructure solutions for the next decade. With a hand in everything from jet engine manufacturing to medical imaging devices, this conglomerate is diversified to say the least. Although financial services still contribute a large portion of the company’s overall business (13% in the last year), the pared down, strengthened operation of GE Capital should look much more attractive to shareholders these days.
So should GE’s balance sheet. With more than $9 billion of cash in its coffers, this stock’s dividend looks secure for the foreseeable future.
Owners such as Warren Buffett agree. The Oracle of Omaha owns a small stake in GE that was unchanged in his latest quarterly filing with the SEC. In fact, 24/7 Wall St.'s Jon Ogg recently named GE one of Warren Buffet's 10 best investments for 2011 in a list of top Buffett stocks with the most upside.
On his blog recently, Jim Cramer wrote that GE is the "quintessential old-line name that has just boosted the dividend, and people love that these days." He said it's one of several stocks likely to see year-end buying.
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.