Monday, September 24, 2012

Nine Income Stocks Delivering Dividend Increases to Shareholders

There were more than twenty companies which announced dividend hikes over the past week. In this article, I have outlined the companies which have managed to boost distributions for at least five years in a row.  I have excluded companies which pay fluctuating dividends as well as companies which might have raised dividends for a few years in a row simply by accident. Past dividend growth is no guarantee of future success however. As a result I added a brief analysis after each consistent dividend stock.

The nine consistent dividend raisers from the past week include:

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. This master limited partnership announced its plans to increase unitholder distributions to 65 cents/unit in the third quarter and 65 cents/unit in the fourth quarter of 2012. Enterprise Products Partners has raised distributions for 16 years in a row and yields a healthy 4.90%.

Few income stocks commit to boosting distributions for several quarters in a advance. Only a business with dependable cashflows could afford to accomplish this. The increase in distributions is supported by fee-based projects in Eagle Ford Shale in South Texas, which recently went online. In addition, the company also announced that a few other fee-generating assets are on schedule to start delivering revenues by the end of 2012. Check my analysis of this MLP.

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. The company raised its quarterly dividend by 10% to 77 cents/share. This marked the 36th consecutive annual dividend increase for this dividend aristocrat. Yield: 3.30%

In general, the most recent dividend increase has been very similar to what I forecasted the company’s future annual dividend growth rate to be over the next few years. Analysts expect the Golden Arches to boost EPS by 7%/year for the next two years, from $5.27/share in 2011 to $6.03/share in 2013. As a result, future dividend increases in the 10% range could be easily supported by growth in business, reduction in share count and slight expansion in the dividend payout ratio. Check my analysis of McDonald’s.

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This REIT announced a slight distribution increase in its monthly dividends to $0.1514375 per share. This is an increase of 4.30% over the distribution paid this time last year. Realty Income has boosted distributions for 18 consecutive years, and was one of the few real estate investment trusts that didn’t cut dividends during the Financial Crisis. However, given the low yield of 4.40%, I view the stock as a hold. The weak distribution growth over the past five years, coupled with investor’s hunger for dividend yield, has pushed the stock above my buy point. However, I do like the intent to acquire American Realty Capital Trust (ARCT), which would generate additional FFO/share to increase distributions to $1.94/share after deal is closed. I would consider adding to my position at yields around 5%, but until then the stock is a hold for my income portfolio.

Microsoft Corporation (MSFT) develops, licenses, and supports software products and services; and designs and sells hardware worldwide. The company raised its quarterly distributions by 15% to 23 cents/share. This marked the eighth consecutive annual dividend increase for Microsoft. Yield: 3%

I like the fact that Microsoft is a virtual monopoly in the PC market with its Windows Operating system. When I previously analyzed the stock, I liked the valuation, potential for dividend growth and the company’s moat at present levels. However, I am still unsure of whether Microsoft will be able to maintain strong competitive position with software going forward, as an increasing number of users are switching from PC’s to Notebooks to Tablets. Moats are very difficult to maintain in the technology world, which is probably why I have been hesitant to add tech companies such as Microsoft (MSFT) and Intel (INTC) to my portfolio.

YUM! Brands, Inc. (YUM), together with its subsidiaries, operates as a quick service restaurant company in the United States and internationally. The company raised its quarterly distributions by 17.50% to 33.50 cents/share. This marked the ninth consecutive annual dividend increase for Yum! Brands. Yield: 2%

The company is expected to grow earnings from $2.74/share in 2011 to $3.73/share by 2013. Strong earnings growth will fuel double digit dividend increases at least by the end of the decade. Unfortunately, the stock is trading at more than 21 times earnings and only yields 2%. I was able to scoop some shares of this fast growing company a few years ago and would likely add to my position on any large dips in the stock price. I would add to my position if price falls to $54/share, or if the dividend goes up by 25% next year and price is unchanged from today’s levels I would likely be a buyer.

Texas Instruments Incorporated (TXN) engages in the design and sale of semiconductors to electronics designers and manufacturers worldwide. The company raised its quarterly distributions by 23.50% to 21 cents/share. This marked the ninth consecutive annual dividend increase for Texas Instruments. Yield: 2.90%

On the surface, Texas Instruments seems like a company with strong dividend growth, sustainable dividend payout and above average yield. In addition, the company would likely join the list of Dividend Achievers in 2013. However, investors who look closely at the numbers would realize that much of the dividend growth has been mostly due to expansion of the dividend payout ratio. Earnings have tended to be volatile, which means that future dividend growth above $1/share in annual dividends would be very difficult to achieve organically. In addition, it currently is trading at 21 times earnings. I find the stock to be a hold at current levels.

ConAgra Foods, Inc. (CAG) operates as a food company primarily in North America. The company operates through two segments, Consumer Foods and Commercial Foods. The company raised its quarterly dividend by 4.20% to 25 cents/share. This marked the 6th consecutive annual dividend increase for ConAgra. Yield: 3.60%

The company cut distributions in 2006, and has been increasing them very slowly since then. The trend in earnings per share has been erratic over the past decade, which led to the cut in 2006. I would continue monitoring the situation at ConAgra, but without any sustainable earnings growth over the next decade, the company might be unable to even achieve a dividend achiever status in four years.

Cracker Barrel Old Country Store, Inc. (CBRL), through its subsidiaries, engages in the development and operation of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. The company raised its quarterly dividend by 25% to 50 cents/share. The new rate also represents a 100% increase over last year’s distribution of 25 cents/share. Cracker Barrel has raised dividends for 10 years in a row. The company looks attractively valued, and seems to have an adequately covered dividend. I would consider adding it to my list for further research. Yield: 3%

The First of Long Island Corporation (FLIC) operates as a bank holding company for The First National Bank of Long Island that provides financial services. The company raised its quarterly dividend by 8.70% to 25 cents/share. This marked the 17th consecutive annual dividend increase for First of Long Island Corporation. This bank has managed to quietly double EPS over the past decade, while raising distribuions by 13.40%/year on average over the same time period. I would consider adding it to my list for further research. Yield: 3.20%

Full Disclosure: Long EPD, MCD, YUM, O

Relevant Articles:

Enterprise Products Partners (EPD): A Pipeline Cash Machine
McDonald’s (MCD) Dividend Stock Analysis 2012
Dividend Aristocrats List for 2012
Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors

Popular Posts