11/24/2011 7:27 PM ET|
6 companies with soaring dividends
Dividends are on the rise right now. And while consistent payers like Sysco always have some allure, investors should watch for big jumps like the ones at Corning and Union Pacific.
Dividends are back in style.
Of course, for some companies they never stopped being a key way to return profits to shareholders. For example, when food distributor Sysco (SYY, news) raised its dividend this quarter by 3.8%, it marked the company's 10th consecutive annual dividend increase. The 9% increase in its annual dividend declared on Nov. 21 by Lancaster Colony (LANC, news), a manufacturer of candles and specialty foods, beat even that record of consistency. Lancaster Colony is one of only 16 U.S. companies to have increased cash dividends every year for 49 years or more.
But I'm talking about something very different than those examples of dividend consistency. This quarter, I'm seeing companies that have been relative dividend tightwads decide not only to raise their payments but to raise them big time.
I'm seeing 12%, 15% and even 50% and 67% dividend increases. I've even seen one company raise its regular annual dividend payout twice this year.
For these companies, this isn't business as usual -- and it signals something new in the way these companies have decided to support their share prices in a very rough stock market.
The good news for investors, of course, is that these dividend increases are coming at a time when lasting price appreciation has become extremely hard to come by.
What works and what doesn't
What's going on? I think we're seeing a recognition by some companies that share buybacks as a way to boost share prices and impress shareholders aren't very effective right now.
Part of that might come down to buyback fatigue. The volume of buybacks, in which companies purchase their own shares in the markets, peaked with $914 billion authorized in 2007. This year, the total so far comes to $445 billion -- the highest since 2007.
But when every company is doing buybacks, they don't make a company stand out. Once buybacks become a regular piece of corporate financial management, they simply don't convey much information to investors about what a company's management thinks about future performance. And, I'd argue, investors have become justifiably cynical about buybacks. Remember that total for 2007? That was for announced buybacks. Once a company has announced a buyback program with suitable fanfare, it isn't under any legal obligation to actually buy the full dollar amount of shares authorized. If the future turns out to be not quite so rosy -- or so profitable -- then, never mind.
Of course, there's also the problem that buybacks may simply not do a good job of delivering value to shareholders. Research by Fortuna Advisors shows that the median Standard & Poor's 500 Index ($INX) company engaged in stock buybacks from 2004 to 2008 delivered a return on investment of 3%. Seventy-five percent of such companies delivered a return on investment of less than 10%. The data suggest, certainly, that these companies would have been better off investing in their own businesses -- if they could identify opportunities that would return more than 10%. And if they couldn't find those opportunities, they should simply have returned the cash to shareholders in the form of dividends.
And don't forget the allure of a dividend in a stock market that isn't delivering much in the way of capital gains. If you're still bullish, a dividend is a way to get paid while you wait for the turn in prices. If you're less optimistic, a dividend yield of 3% or 4% or more is still attractive when the alternative is a 10-year Treasury paying less than 2%.
4 big increases
Some of the dividend increases I've seen recently look like naked attempts -- and good for management for recognizing the opportunity to make an impression on yield-starved investors -- to push a stock's yield above that offered by a 10-year Treasury. For example, Johnson Controls (JCI, news) raised its dividend 12.5% on Nov. 16 to a projected annual yield of 2.5%. When Emerson Electric (EMR, news) raised its annual dividend by almost 16%, the company wound up with a 3.4% projected yield on its shares. (What's a projected yield? It's the yield that you get looking forward at the declared dividend rate over the next four quarters divided by the current share price. In the case of a company that has just raised its dividend, I think this gives investors a better picture of a stock's yield than looking at the old trailing-12-month dividend payout.)
Other companies are still playing the old dividend-as-signal game, where a substantial dividend increase isn't enough to turn a piddling yield into a competitive payout but is an effective shout-out announcing that a company is back after a recent slide. I'd put the 40% dividend increase at Whole Foods Market (WFM, news) in that category. The 40% jump did grab my attention, even if the 0.6% projected yield wasn't exactly mouthwatering.
The same goes for the big 67% dividend increase announced on Nov. 3 by Starwood Hotels & Resorts Worldwide (HOT, news). That brings the annual payout to 50 cents a share, from 30 cents. The projected yield is just 0.6%, but the boost is big enough to convince me that management really, really believes that the company's mix of 70% international and 30% U.S. properties, and its strategy of managing rather than owning, will continue to work even if the global economy is relatively soft in 2012. And the dividend announcement is a good counter to the disappointing guidance for fiscal 2012 that Starwood delivered on Oct. 27, when it reported fourth-quarter earnings for fiscal 2011. For fiscal 2012, the company said, earnings per share would be $1.96 to $2.25 versus the Wall Street consensus forecast of $2.25.
The hike in the dividend, then, serves as a reminder that the lowered guidance doesn't suggest anything like the end of the world for the company's business.
2 more telling dividend jumps
I think a dividend increase like the 50% jump announced by Corning (GLW, news) on Oct. 6 serves both purposes. First, it pushed Corning's projected dividend yield up to 2.1%, above the yield on the 10-year Treasury. Second, it signaled that the company, which would announce some pretty negative trends for demand for its liquid crystal display (LCD) glass in the fourth quarter, was confident that demand would recover in 2012.
All things considered though, what I really like to see in a dividend increase right now is a jump that puts the yield over the 10-year Treasury rate and that signals not only that the future isn't grim but that it might be downright rosy. That's the combined message that I think Union Pacific (UNP, news) sent when it raised its dividend not once but twice this year. The two increases brought the projected yield on the railroad's shares to 2.4%.
When the company reported third-quarter earnings on Oct. 20, it said revenue had climbed 15.7% from the third quarter of 2010 as total carloads carried grew by 1%. Four of the railroad's six business groups -- those for autos, industrial products, energy and chemicals -- reported increased volumes.
And for 2012? Standard & Poor's projects a 3% increase in volume and a 6.5% increase in revenue (after the 15% revenue growth in 2011). Credit Suisse is less optimistic about growth in volumes, projecting a 2% increase, but more optimistic on pricing, which translates into an estimated 18% increase in earnings in 2012 from 2011.
S&P puts a 12-month target on the stock of $107 a share. (It closed at $98.25 on Nov. 22.) Credit Suisse has set its target at $120 a share.
If I can extrapolate from Union Pacific's two dividend increases in 2011, I'd say the railroad would agree with the higher target.
That's obviously just the company's opinion, and predicting growth in 2012 in the U.S. economy is a tough job. But as we try to cut through the confusion, I'd suggest that investors pay special attention to companies that are letting their dividend increases do the talking.
At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own shares of any stock mentioned in this column. Find a full list of the stocks in the fund as of the end of September here.
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
Click here to find Jubak's most recent articles, blog posts and stock picks.
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It amazes me that people will write political slams in an article that has nothing to do with politics.
I guess it proves what a friend of mine says."Half the adult USA population has below average intelligence."
Stock buybacks are a way for CEO's & other top management to tempoaraily raise the stock price, so they can cash in their stratosphere stock options. Prime example back in the in the 90's, our then CEO Gordon Bethune, announced a stock buyback program, instead of funding Continental Airlines pension program. Of course he made out like a bandit, & the airline is still underfunded in it's pension liabilitys.
I am all for dividends, & my 401 (K), is mainly loaded up in energy sector dividend paying stocks. I have a couple in other industries, but, even though MLP's are supposedly not the place in a 401 (K), you got to love those great dividends. I, like many here in the USA, thinks this stock market is a total farce. With all this "options trading", rapid fire computer trading, insider politician trading, company insider trading, is geared for the well to do. The little guy, is at such a disadvantage, it's basically a sham. But, what are the alternatives??
Real estate is a house of cards, as well as the stock exchanges. Money under the mattress won't do you any good, so dividends in quality "needed companies to make the world go around", is probably your best bet. I look at investing, as a big blackjack play. Use your odds, street smarts, & bet on the plain vanilla companies that keep on pumping out consistent earnings & dividends. Case in point, would be the pipeline MLP's. We are going to need energy for a long time to come, & the energy that comes out of the ground, needs to get from point A to point B. These companies supply the pipes, sign long term contracts, & keep churning out great dividends. Reits are another play, although a bit more risk involved, but, another way to cash in on divies. Food compnies like KRAFT, or the above mentioned SYSCO, are another steady divie play. Not some flashy compnay like APPLE, but, a vanilla approach to consistent dividends.
So, although this market is rigged in favor of the elite, & "in the know" traders, the little guy just needs to do some due digilence. Invest for the long haul with vanilla companies, that make the world go around. There plenty of great "vanilla" companies, that pay 5% or more in consistent dividends. I suppose I could use the mattress approach, but, in the long run, my $1 today will be worth .30 cents when I retire. Use my blackjack knowledge, make true odds bets on dividend paying stocks, & I should see a nice return for a long time to come.
Of course, the world come come to an end with a huge asteroid, but, that's a bet for the lotto.
I think Mr. Jubak has missed a fundamental truth in the investing world: companies in trouble often raise their dividends sky high in an attempt to woo investors. As a result, these companies end up getting more debt, and whatever revenue they make end up going to investors instead of being invested in the company itself, which just digs the company deeper and deeper into a hole. One such example is Nokia (NOK), a cellphone handset maker that pays a whopping 10.5% dividend, yet its YTD stock performance is -47%. In other words, Nokia stock today is worth only half what it was worth a year ago, not to mention that the company itself hasn't made a profit in the last 5 years. Another example is Southern Copper Corp, a mining company with a dividend of 8.85%, and a YTD stock performance of -43%. Other examples include Motorola Inc, which also paid out high dividends, but was also in trouble until it was bought by Google. The old GM was also paying out some pretty high dividends until it went bankrupt in 2009 and was taken over by the US government, effectively wiping out all investor who held the old stock (since it no longer exists). The moral is, don't buy a company stock unless both the company, as well as the sector it operates in, is in relatively good shape.
If I can't answer "yes" to the above questions, I don't buy the stock. Pretty simple really.
Well Dividends alone should not be a criteria for investing right . Cash flows , debt levels and how the company fares with respect to its competation , market share also matters a lot.
I challenge you to work with the President instead of disrespecting him for his efforts.
Real Americans should stick together not tear each other apart.
The world is watching us ........
"THIS SO CALLED PRESIDENT , MUST GO!!! THATS THE ONLY WAY THIS ECONOMY WILL GET BETTER"
Ya right bring back another Bush clone and the market will improve to where it was when that moron in chief left, something like 8000 and falling. The markets are rigged to benifit the morally bankrupt called the 1%.
The reason the Rethugs are willing to destroy the economy just to make sure Obamaer dose not get re-elected is that no matter where the economy goes the 1% will still make out like bandits. Alot of money was made by the 1% when the economy tanked under Bush and the Republican Recession, that was just a harvest of middle class 401k money for these un-American greedy blood sucking insects. Bottom line if you are not in the 1% the Republican party considers you expendable and will sell you out just like they sold out America.
A middle class person voting Republican is like a chicken voting for Colonel Sanders.
YEAL.....remember theNew York Mets invested haevy in dividend paying stocks and look where it got them ...BANKRUPT....
Republicans are now talking -invest in the market ....heavy if you can....and watch your portfolo
Anyone deeply invested in the stock-market better start growing their own potatoes.
The rest of us are preparing for the show, dusting off our worn out lawn chairs and getting out the binoculars to watch the carnage that is just around the corner.
The manipulators behind the scenes are the ones we will watch bailing out of the windows soon. Makes us sick, but probably is what will eventually happen.
Doesn't matter who is President or whether or not we ever have another one.
The melt-down has began. Won't be long till the homeless are Kings and Queens of the hill. The markets become farmers markets. Better consider investing in them.
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