Increasing dividends is becoming a common trend these days,
mostly followed by companies that boast a stable cash position and
healthy cash flows. These strategies not only enhance shareholders'
return but also raise the market value of the stock. The companies
through this strategy bolsters investors' confidence on the stock,
thereby persuading them to either buy or hold the scrip instead of
selling them.
Recently,
Limited Brands Inc.
(
LTD
), a specialty retailer of women's intimate and other apparel,
beauty and personal care products, raised its annual dividend by
25% to $1.00 from 80 cents a share. The company announced that the
dividend will be paid on March 9, 2012, to stockholders of record
as of February 24, 2012. The dividend yield based on the new payout
and the last closing market price is 2.4%.
Last December, Limited Brands, an S&P 500 company, declared
a special dividend of $2 per share. In January 2011, the company
had last hiked its dividend to 80 cents from 60 cents, reflecting
an increase of 33%.
Limited Brands' commitment towards increasing shareholders'
return reflects the company's free cash flow generating capability
and sound liquidity position. The company expects to have a free
cash flow of about $700 million and a cash balance of approximately
$800 million at the end of fiscal 2011.
Currently, we have a long-term Neutral recommendation on the
stock. However, Limited Brands holds a Zacks #2 Rank that
translates into a short-term Buy rating.
Following the Foot Steps
Limited Brands is not the only one to be focusing on paying
higher dividends, other bellwethers too have already added their
names in list of dividend hikes. The owner of Victoria's Secret
Direct and La Senza chains also followed the foot steps of other
S&P 500 companies, who increased their dividend payouts to
boost investors' return.
The McGraw-Hill Companies Inc.
(
MHP
), a publisher and provider of financial information and media
services, stated a hike in its quarterly dividend by 2% to 25.5
cents a share. Since 1974, the company has boosted its dividend at
a compound annual dividend growth rate of around 9.6%.
The increased dividend will be paid on March 12, 2012, to
stockholders of record as of February 27, 2012. The dividend yield
based on the new payout is 2.2%. The company holds Zacks #2 Rank
that translates into a short-term Buy rating.
Macy's Inc.
(
M
), one of the leading department store retailers in the U.S.,
announced a two-fold increase in its quarterly dividend of 10 cents
to 20 cents a share. The increased dividend will be paid on April
2, 2012, to stockholders of record as on March 15, 2012.
The last quarterly dividend hike was from 5 cents to 10 cents,
which was paid in July 2011. The dividend yield based on the new
payout is 2.4%. The company holds Zacks #2 Rank, which translates
into a short-term Buy rating.
Family Dollar Stores Inc.
(
FDO
), the operator of self-service retail discount store chains,
raised the quarterly dividend by 16.7% to 21 cents a share. Since
the inception of dividend program in 1976, the company has raised
its dividend every year at a compounded average growth rate of
about 16%. The new dividend will be paid on April 13, 2012, to
shareholders of record as on March 15, 2012. The dividend yield
based on the new payout is 1.5%.
The company holds Zacks #3 Rank that translates into a
short-term Hold rating.
The Washington Post Company
(
WPO
), a diversified education and media company, announced 4.3% jump
in quarterly dividend to $2.45 per share. The increased dividend is
payable on February 10, 2012, to stockholders of record as on
January 30, 2012. The dividend yield based on the new payout is
2.6%.
The company holds Zacks #3 Rank that translates into a
short-term Hold rating.
Our Take on Role of Dividend
Perhaps, increasing dividend appears to be one of the best tools
to win back the confidence of the investors, who now prefer to move
to the safe heaven, in an economy that is fraught with risks.
Investors, in order to shield themselves from the upheavals that
the financial world is susceptible to, are now diligently choosing
their portfolio of stocks that can give them the best returns. On
that note, while building the portfolio, underlining dividend
growth potentiality plays a vital role.
Investors do prefer an income generating stock, and a dividend
paying stock is always a preferable option. Meanwhile, keeping the
hard cash in the bank's locker is a much safer alternative than
investing in stocks, so offering higher return on stocks becomes
obvious to compensate the risk undertaken. Higher dividend growth
companies have a better chance to attract investors that in turn
provides an impetus to the share price.
A consistent dividend payment and increasing the same at regular
intervals primarily reflect the company's sound financial position,
defined future prospects and intention to enhance shareholders'
value. But what might hurt shareholders' sentiment is a dividend
hike in one year, followed by a cut in the next year.
However, not all companies pay dividend regularly, and even some
companies don't declare dividend. Nonetheless, that never suggests
that the stock is devoid of growth propositions, unless the
underlying fundamentals indicate so. It might be that they want to
preserve the earnings for future expansions rather than to payout
in the form of dividend. So, do consider all the factors while
picking the stocks.
Every stock has its own strengths and weaknesses that need to be
evaluated. Dividend increase remains one of the criterions to be
considered before taking any investment decision, but apart from
that an investor must take into account the top and bottom lines'
growth potential, free cash flow generation capability, cash flow
per share, return on capital and debt-to-total capital ratio to
name a few. A diligent use of these tools will help in assessing
and scrutinizing equity investments.
FAMILY DOLLAR (
FDO
): Free Stock Analysis Report
LIMITED BRANDS (
LTD
): Free Stock Analysis Report
MACYS INC (
M
): Free Stock Analysis Report
MCGRAW-HILL COS (
MHP
): Free Stock Analysis Report
WASHINGTON POST (
WPO
): Free Stock Analysis Report
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