Monday, August 30, 2010

Altria Delivers Another Smoking Hot Dividend Increase

Every week I check the list of companies that raise dividends. There are several reasons for that. The most of important reasons include checking whether companies I own keep raising distributions, as well as to identify companies which could be a potential addition to my portfolio at some point in time. The companies which announced increases in their dividend payments include:

Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company announced an 8.60% increase in its quarterly dividend to 38 cents/share. This was the second dividend increase this year. The company announced that the increase reflects the company's intention to return a large amount of cash to shareholders in the form of dividends, and is consistent with the company's dividend payout ratio target of approximately 80% of its adjusted diluted earnings per share. This is the 43rd consecutive dividend increase for Altria Group. The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM) in 2008 and Kraft Foods (KFT) in 2007. The stock yields 6.70%. Check my analysis of the stock.

MGE Energy, Inc. (MGEE), through its subsidiaries, operates as a public utility holding company. It engages in generating, purchasing, transmitting, and distributing electricity. The company raised its quarterly dividend from $0.3684 to $0.3751 per share. The company has increased its dividend annually for the past 35 years and is part of the dividend achievers index. Yield: 4.10%

Bob Evans Farms, Inc. (BOBE), a full-service restaurant company, owns and operates Bob Evans Restaurants and Mimi’s Cafes in the United States. The company’s Board of Directors approved an 11.1% increase in the quarterly cash dividend from 18 cents/share to 20 cents/share. The company has consistently raised distributions since 2001. Yield: 3.10%

Westlake Chemical Corporation (WLK) manufactures and markets basic chemicals, vinyls, polymers, and fabricated products. It operates in two segments, Olefins and Vinyls. The company’s Board of Directors raised quarterly distributions by 10% to 6.35 cents/share. The company has consistently raised dividends every year since going public in 2004. Yield: 1%

G&K Services, Inc. (GKSR) provides branded identity apparel and facility services programs in North America. The company’s Board of Directors announced a 27% increase in its quarterly dividend to 9.5 cents/share. The company has raised distributions for five consecutive years.
Lorillard, Inc. (LO), through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company’s board of directors approved a 12.5% increase in the quarterly dividend on its common stock from $1.00 per share to $1.125 per share. This was the second consecutive dividend increase since the company began trading on NYSE in 2008. Yield: 6%

Todd Shipyards Corporation (TOD), a private shipyard operator, engages in the ship repair, construction, conversion, and maintenance work on commercial and federal government vessels that offers various maritime activities in the Pacific Northwest. The company’s Board of Directors declared an increase in its dividend of two and one-half cents per share, bringing its quarterly dividend to ten cents per share. While this is the second dividend increase this year, bringing the total dividend increase to 100%, the new dividend is still 33% lower than the distribution paid in 2008. The company has cut distributions in 2009. Yield: 2.70%

Stage Stores, Inc. (SSI) operates as a specialty department store retailer in the United States. The company’s Board of Directors raised the quarterly dividend by 50% to 7.5 cents/share. This was the first dividend increase since 2006. Yield: 2.70%

The companies, which seem worthy for further research include utility MGE Energy, Inc. (MGEE) and restaurant operator Bob Evans Farms, Inc. (BOBE). Both companies seem to have an adequately covered dividend, a price/earnings ratio that is below 20, a dividend yield that is higher than 2.50% and also have a history of raising dividends for 10 years or more. Westlake Chemical Corporation (WLK), G&K Services, Inc. (GKSR) and Lorillard, Inc. (LO) are a few years away from reaching a status of dividend achiever, which requires ten years of consecutive annual dividend increases. Nevertheless I would keep monitoring whether they keep rewarding shareholders with higher dividends.

Altria Group on the other hand also seems like an interesting play on tobacco. Some readers however might have something against the type of product the company is selling. In addition to that the high payout ratio is a little troubling, despite the assurance that management intends to share 80% of the profits with shareholders. Analysts do expect FY 2010 EPS to be $1.90 and then to increase to $2 by FY 2011. This means that future dividend increases will be more exposed to earnings fluctuations. As always, tread cautiously.

Full Disclosure: Long KFT, MO and PM

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