Monday, January 17, 2011

Five High Yield Dividend Growth Stocks Raising Distributions

Dividend investors typically face a tradeoff between dividend yield and dividend growth. Companies with high yields often keep distributions unchanged or do not increase them at a rate that would compensate for the eroding power of inflation. Because of the higher yields, retirees tend to prefer the higher yield today. The companies with low yields on the other hand typically can afford to grow distributions much faster than the rate of inflation. Younger investors typically invest in these dividend growth stocks, in order to generate a sufficient yield on cost down the road.

The dividend growth companies that raised distributions last week were no exception:

Enterprise Products Partners L.P. (EPD) provides a range of services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the continental United States, Canada, and Gulf of Mexico. This master limited partnership announced a 1.30% increase in its quarterly distributions to 59 cents/unit. This was also a 5.40% increase over the Q1 2010 distribution. This dividend achiever has raised distributions every year since going public in 1998. Yield: 5.50% (analysis)

Plains All American Pipeline, L.P. (PAA), through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products (LPG) in the United States and Canada. This master limited partnership announced a 0.80% increase in its quarterly distributions to 95.75 cents/unit. This was also a 3.20% increase over the Q1 2010 distribution. This dividend achiever has raised distributions every year since going public in 1999. Yield: 5.90%

Genesis Energy, L.P. (GEL), together with its subsidiaries, operates in the midstream segment of the oil and gas industry in the Gulf Coast area of the United States. The company operates through four divisions: Pipeline Transportation, Refinery Services, Industrial Gases, and Supply and Logistics. This master limited partnership announced a 3.20% increase in its quarterly distributions to 40 cents/unit. This was also a 11.10% increase over the Q1 2010 distribution. In addition to that Genesis Energy announced the elimination of its incentive distribution rights to the general partner. This MLP has raised distributions for seven years in a row. Yield: 5.90%

Shaw Communications Inc. (SJR), a diversified communications company, provides broadband cable television, Internet, digital phone, telecommunications, and satellite direct-to-home (DTH) services primarily in Canada and the United States. The company increased monthly dividends by 5% to 7.67 canadian cents/share. Shaw Communications is a member of the international dividend achievers index, and has increased dividends for 9 years in a row. Yield: 4.40%

Alliant Energy Corporation (LNT) operates in electric and gas utility businesses in the United States. The company announced a 13% raise in its quarterly dividends to 42.50 cents/share. This was the ninth consecutive dividend increase for Alliant Energy. Yield: 4.50%

CVS Caremark Corporation (CVS) operates as a pharmacy services company in the United States. It operates in two segments, Pharmacy Services and Retail Pharmacy. The company announced a 43% raise in its quarterly dividends to 12.50 cents/share. This was the eight consecutive dividend increase for CVS Caremark. Yield: 1.40%

Most of the companies which raised distributions last week, and have raised distributions for over 5 years, were high dividend stocks such as master limited partnerships, utilities and telecoms. While their current yields are high, their dividend growth rates have been low. CVS on the other hand has a low current yield, however the dividend has been rising quickly. Just like anything in life, a balanced approach to include high yield stocks with low dividend growth, low yield stocks with high dividend growth and stocks with moderate yields and growth would ensure that investors receive a diversified income stream which provides sufficient current dividend income today, while also providing a decent dividend growth over time.

Full Disclosure: None

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3 comments:

  1. MLPs are great investments for dividend plays. I would be leery of CVS. I think the company is struggling right now to grow its market, and its signature pharmacies are being squeezed by insurers. Also, the short % is very high, meaning price may drop in the short term.

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  2. I really like CVS right now. EPS has been increasing, ROE is stable and dividends are increasing. The stock seems fairly valued with P/E of 14. The company has announced that they are targeting a dividend payout ratio of 25-30% by 2015. If share prices and EPS were to remain stable that would be point to an annual dividend in the range of $0.65-$0.80 and a yield of 1.8% to 2.2%. Obviously share prices and EPS will likely change but the focus on dividend increases could result in some outstanding yield on cost.

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  3. I read the article and I really liked it..
    Thanks for the great post..

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