By Jonas Elmerraji
Posted on Nov. 24, 2009
Don’t dismiss dividends right now. While stocks may have made significant strides in the rally that’s taken hold of the market since March, there’s still a lot to be said for companies that are consistently paying out cash to shareholders. And the companies that actually increase their dividends during a tough economy send an even stronger signal to investors.
With cash hard to part with when business is slow, management’s decision to let shareholders have a bigger cut tells Wall Street that a company is in good enough financial shape to weather the storm.
Income investors aren’t the only people who should focus on companies that hike their dividends. Historically, companies that pay dividends materially outperform those that don’t, and when the market turns bearish, dividends could be the only semblance of return that investors see for a while.
That’s why every week Stockpickr reviews recent dividend declarations and compiles a portfolio of dividend-increasers. These stocks represent some of the most enticing investments on the market right now.
First up on this week’s list is Campbell Soup (CPB), which reported strong earnings on Monday. Campell Soup, the world’s largest soup maker, also made this week’s Rocket Stocks list.
In its earnings release, the company announced that it had increased net income by 14%, brining in 87 cents per share, compared with analyst estimates of just 81 cents. Those solid earnings were foreshadowed by a 10% dividend hike, which brings the company’s quarterly payouts to shareholders in at 27.5 cents per share.
One fund that was surely hoping for such solid performance was the $406 million Tocqueville (TOCQX), which holds Morningstar’s four-star rating. The fund also owns stakes in Microsoft (MSFT) and General Electric (GE).
Campbell currently sports a dividend yield of about 3.2%.
Infrastructure and industrial services company Harsco (HSC) also announced a dividend increase last week, bringing the company’s payouts to shareholders to 20.5 cents per share. The company has been hit with declining sales as a result of the global slowdown but has nevertheless managed to maintain strong margins and profitability.
Harsco’s modest 2.5% dividend increase is a hat tip to Wall Street, acknowledging that the company is ready for increased analyst interest. That move has likely reinvigorated the Allianz NFJ Small-Cap Value fund (PSVIX), which with approximately 2 million shares of Harsco is the company’s largest mutual fund shareholder.
The fund also owns large positions in other small-cap stocks, including Del Monte Foods (DLM) Royal Gold (RGLD), another dividend-increaser this week.
Harsco now sports a dividend yield of about 2.5%.
The worldwide cutback in discretionary purchases has taken its toll on sporting-goods manufacturers the world over. But with bulletproof margins, excellent brand positioning, and now a dividend increase, Nike (NKE) looks like the best-in-breed play as the industry begins to resurge.
While the global slowdown has taken a bite out of top-line numbers across the board, Nike’s gross margins currently ring in at more than four times the industry average, which has given them plenty of cushion as the market begins to heal. Those gluttonous margins are largely thanks to the price premium that Nike can demand as a result of the company’s branding prowess. And that advantage is one that’s likely to continue for some time.
The Fidelity Contrafund (FCNTX) is a large-cap, 5-star mutual fund that counts Nike as one of its top 15 holdings. In addition to the sports apparel company, the fund also holds sizable stakes in Google (GOOG) and Berkshire Hathaway (BRK.A).
Nike currently sports a dividend yield of 1.55%.
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.
At the time of publication, Elmerraji 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.
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