5 Stocks Getting Ready to Pay Bigger Dividends
Dividends are cheap right now. And they aren’t going to stay this cheap forever.
Right now, dividend value metrics are popping off the charts. Not only is the dividend yield of the S&P 500 [.SPX
1450.99
5.24
(+0.36%)
]
still higher than it was anytime since the mid-1990s (safe for the
absurd bargains floating around in 2009), the index’s constituents are
within a hair’s breadth of paying out a bigger per-share annual dividend
in 2012 than they’ve ever paid before.
5.24
(+0.36%)
]
still higher than it was anytime since the mid-1990s (safe for the
absurd bargains floating around in 2009), the index’s constituents are
within a hair’s breadth of paying out a bigger per-share annual dividend
in 2012 than they’ve ever paid before.
And for the rest of the year, with the Federal Reserve
pumping up the money supply by the $40 billion truckload, the premium
income payouts that equities offer aren’t going to last for long. Just
look at the rally that’s been going on since June — if Mr. Market’s
trajectory is any indication of things to come, the dividend deals
aren’t going to stick around.
But
chasing yield is only one way to take advantage of cheap dividends this
fall. Stepping in front of dividend hikes is probably a better one.
That’s
exactly why we’re scouring the stock market for a new group of big-name
stocks that look ready to hike their dividend payouts in the coming
quarter. In other words, these five firms are getting ready to boost
dividends; they just don’t know it yet.
For
our purposes, that “crystal ball” is composed of a few factors: namely a
solid balance sheet, a low payout ratio, and a history of dividend
hikes. While those items don’t guarantee dividend announcements in the
next month or three, they do dramatically increase the odds that
management will hike their cash payouts, especially as investors start
to get antsy about this late-2012 rally. And the number of dividend
hikes we've already been able to predict with this same approach speaks
volumes.
Without further ado, here’s a look at five stocks that could be about to increase their dividend payments in the next quarter.
General Electric
Industrial behemoth General Electric [GE
22.91
0.12
(+0.53%)
] is having a standout year in 2012. So far, shares of the firm have rallied more than 26 percent, besting the S&P’s [.SPX
1450.99
5.24
(+0.36%)
] already impressive returns by a wide margin this year.
0.12
(+0.53%)
] is having a standout year in 2012. So far, shares of the firm have rallied more than 26 percent, besting the S&P’s [.SPX
1450.99
5.24
(+0.36%)
] already impressive returns by a wide margin this year.
GE’s
hefty 3 percent dividend yield has added a material amount to the
returns investors are getting on this conglomerate. Currently, that
payout comes from a 17 cent per share dividend. I think that GE has room
for growth in 2012.
GE is a manufacturer with its hands in a
diverse group of businesses: The company builds everything from jet
engines to medical devices to dishwashers. The common thread between all
of those seemingly disparate units is that the products are
capital-intense, so they do significantly better when money is cheap and
readily available — just like now. GE is a case study for companies
hoping to find cost savings between completely different units and boost
the bottom line even when times are tough. That’s a big benefit in this
economy.
But
investors shouldn’t forget that one of GE’s biggest businesses is still
lending. GE Capital nearly gutted the rest of the company when the
credit crisis hit in 2008, requiring equity dilution to keep shares
afloat. While the business has recovered immensely in the years since,
it’s still probably too big a portion of GE’s total business today. That
said, GE is generating some huge cash flows right now, more than enough
to send some money back to shareholders in the form of a dividend hike.
The firm’s third-quarter earnings call could be just the time and place to give shareholders a raise.
(Disclosure: General Electric is the minority owner of NBC Universal, the parent company of CNBC and CNBC.com.)
CVS Caremark
One billion: That’s how many prescriptions pharmacy giant CVS Caremark [CVS
48.86
0.37
(+0.76%)
]
fills each year. There’s safety in those numbers, at least for CVS
shareholders. The firm has consistently outperformed its pure-play
retail pharmacy peers, delivering enviable net profit margins and paying
out a decent dividend throughout the financial roller coaster of 2007
and 2008. But CVS’ income statement has grown faster than its dividend
payout has — and I think that the firm is ready to hike its 16.25 cent
quarterly dividend.
0.37
(+0.76%)
]
fills each year. There’s safety in those numbers, at least for CVS
shareholders. The firm has consistently outperformed its pure-play
retail pharmacy peers, delivering enviable net profit margins and paying
out a decent dividend throughout the financial roller coaster of 2007
and 2008. But CVS’ income statement has grown faster than its dividend
payout has — and I think that the firm is ready to hike its 16.25 cent
quarterly dividend.
While
CVS is best known to consumers for some 7,000 namesake retail
pharmacies, the other part of the company's name comes from the 2007
acquisition of Caremark, a pharmacy benefit manager. Buying Caremark was
a big deal for CVS — it meant that the firm could suddenly avoid the
somewhat adversarial relationship between PBMs and retail pharmacies. In
essence, PBMs act as a middleman for pharmacies, stepping in between
drugstores and drugmakers to source, package, and distribute
pharmaceuticals in exchange for a markup along the way. Because CVS owns
its own PBM, it doesn’t have to fight over the size of that markup.
The
introduction of MinuteClinics to many of CVS’ store locations has
provided another exciting growth avenue in the last few years,
especially as consumers look for more cost-effective ways to get health
treatments. Make no mistake: Right now, CVS’ cash flows readily support a
bigger dividend payout for investors.
CVS is one of Warren Buffett's holdings as of the most recently reported period. (Read More: Berkshire Hathaway's 15 Biggest Stock Holdings.)
Valspar
Paint, stain, and coatings firm Valspar [VAL
57.47
1.00
(+1.77%)
]
isn’t much of a core income holding right now, but it was a much higher
yielder not long ago. That’s because shares have nearly doubled over
the course of the last 12 months, giving management a very difficult
benchmark to keep up with when they announce quarterly payouts.
1.00
(+1.77%)
]
isn’t much of a core income holding right now, but it was a much higher
yielder not long ago. That’s because shares have nearly doubled over
the course of the last 12 months, giving management a very difficult
benchmark to keep up with when they announce quarterly payouts.
Valspar’s
rally has been predicated on fundamental performance, though, so I
think that a hike to the firm’s quarterly 20 cent dividend is likely in
the near-term, especially given a track record of 34 straight annual
dividend hikes.
Valspar’s
products range from house paint sold to consumers to industrial
coatings used to seal food packages. The firm’s paint is one of the
larger consumer brands in the U.S., with distribution through Lowe’s.
While the hefty customer concentration of Lowe’s does create some risks
for Valspar, they’re more than offset by the increasing geographic
footprint at zero risk that Lowe’s [LOW
30.70
0.41
(+1.35%)
]
provides — it spares the firm from having to open its own retail
stores, a capital-intense proposition. Overseas, Valspar has taken on a
growth-by-acquisition approach that's recently included the purchase of
China’s third-biggest paint brand.
0.41
(+1.35%)
]
provides — it spares the firm from having to open its own retail
stores, a capital-intense proposition. Overseas, Valspar has taken on a
growth-by-acquisition approach that's recently included the purchase of
China’s third-biggest paint brand.
Like
the other names that made this list, Valspar’s cash flows more than
cover its current dividends and its balance sheet obligations, leaving
plenty of room for a bigger payout in the near-term.
Donaldson
The same can be said of filtration system maker Donaldson. Donaldson [DCI
34.71
0.01
(+0.03%)
]
operates a fairly boring business, manufacturing filtration products
that are used in truck engines, turbines, and even disk drives. But
boring is good for income investors, and DCI’s revenue trajectory over
the past few years has largely outperformed bigger names. That sets the
stage for a bigger dividend payout in the next quarter.
0.01
(+0.03%)
]
operates a fairly boring business, manufacturing filtration products
that are used in truck engines, turbines, and even disk drives. But
boring is good for income investors, and DCI’s revenue trajectory over
the past few years has largely outperformed bigger names. That sets the
stage for a bigger dividend payout in the next quarter.
With
a yield that currently sits at just more than 1 percent, Donaldson
clearly isn’t a high yield income name. That said, it’s still a niche
industrial that’s could play a supporting role for investors who want
industrial exposure over income generation. Donaldson has taken a
cost-focused approach for the past several years, efforts that have
produced steadily rising net profit margins every year since 2009.
That,
coupled with a debt-neutral balance sheet make the firm’s payout look
undersized right now — a hike to its 9-cent quarterly payout looks
likely. The firm’s next earnings call in November looks like a plausible
venue for a dividend increase.
Eaton Vance
Last up on the list is Eaton Vance [EV
29.09
0.47
(+1.64%)
],
the Boston-based asset manager with more than $192 billion under
management. Eaton is a leader in equity and fixed-income investments
designed to minimize their clients’ tax burdens. Niches are tough to
come by in the institutional investment business — typically size is one
of the few advantages firms can claim — but Eaton’s focus gives it at
least some semblance of a moat, even if it’s had to fight hard to hold
onto assets in recent years.
0.47
(+1.64%)
],
the Boston-based asset manager with more than $192 billion under
management. Eaton is a leader in equity and fixed-income investments
designed to minimize their clients’ tax burdens. Niches are tough to
come by in the institutional investment business — typically size is one
of the few advantages firms can claim — but Eaton’s focus gives it at
least some semblance of a moat, even if it’s had to fight hard to hold
onto assets in recent years.
A
series of events could help spark upside in Eaton this year. With an
election year shoving extra emphasis on climbing taxes on investment
gains and an equity rally that’s continuing to find higher ground this
fall, the onus is going to be on investors to find more tax-sensitive
ways of managing their money. And because Eaton gets compensated based
on the dollar value of the assets it manages, those factors could help
to swell Eaton’s revenues in kind.
Already,
Eaton Vance sports a reasonably strong balance sheet with a cash
position of more than $633 million that plays a big role in offsetting
its debt load. Margins have been steadily on the rise for the past few
years, and while the firm’s dividend yield is already decent for a
financial sector name at (2.6 percent), its income generations says
there’s still room for improvement.
I’d expect to see a raise in the firm’s quarterly 19 cent payout in 2012.
more @ http://www.cnbc.com/id/49179092
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