The market has surged and plunged during the past two years, but
two things have remained constant. Companies continue to generate
lots of cash. And lacking any real options to re-invest that cash
back into their business, they're hiking or initiating new
dividends at a rapid rate.
According to data compiled by Standards & Poor's, 237 companies
in the S&P 500 have hiked dividends so far this year, while 17
have offered up dividends for the first time (or at least
reinstated them after a several-year hiatus). The list of the 237
is the largest in at least seven years (which is as far back as the
data go). This figure stood at 109 in 2009, and 177 in 2010. And
2011 isn't even over yet...
Some companies aren't just boosting their dividends -- they're
super-sizing them, hiking dividends by 100% or more from 2010
levels. Here are 24 of them.
You'll notice that there are a number of bank stocks on the list.
It's no coincidence. Many banks stocks needed to keep their
dividends quite low until they rebuilt their capital bases to meet
new stricter required minimums. Look for big
hikes from banks like
in 2012, while industrial firms such as
Ford Motor (NYSE:
have announced plans to get back into the dividend game in 2012 as
Of course, a big dividend hike doesn't
a fat payout. Some dividend yields were so small to begin with that
a big boost still won't bring in the income-seeking crowd. For
example, the dividend was doubled at apparel maker
Ralph Lauren (NYSE:
though it was solely aimed at returning more cash to the company's
eponymous founder. (This is
what his dividends pay for...
For many of these companies, there's ample reason to expect
continued aggressive moves on the dividend front. That's because
the current payout is just a fraction of their
free cash flow
. For example,
United Healthcare (NYSE:
paid a paltry $0.03 a share annually throughout most of the last
decade, hiked it to $0.41 a share in 2010, boosted it again to
$0.65 a share this year, and could actually take it up past $2 a
share by my calculations and still leave plenty of funds left. This
would turn a 1.3%
into a 4%
In a similar vein, satellite TV provider
is rumored to be contemplating a first-ever dividend in 2012. With
almost $3.5 billion in annual free cash flow, let's assume the
company looks to pay out 40% of its free cash flow into a dividend
or $1.4 billion. This equates to around $1.60 a share, which would
be good for a 3.8% yield.
Other companies that are increasingly committed to dividend growth
has boosted its dividend at least 25% a year during each of the
past four years. Current yield: 2.4%
has nearly quintupled its divided in the past four years. Current
Church & Dwight (NYSE:
after hiking its dividend more than 30% in 2009 and 2010, it has
more than doubled it this year. Current yield: 1.5%
2011 marks the fifth straight year the dividend has been boosted
at least 40%. Current yield: 1.2%
Ross Stores (NYSE:
boosted its dividend at least 23% every year from fiscal
(January) 2003 to fiscal 2010 (with the exception of fiscal 2007
when it only rose 16%). In fiscal 2011, the dividend was boosted
another 43%, and was hiked in the current
another 26% to $0.88. The current yield: 1.1%.
If these companies keep it up, they'll eventually be offering up
some hefty yields. But who are the yield kings RIGHT NOW? Well,
these are the top 15 yielders in the S&P 500...
Of course, a very high yield should raise a key concern: Why aren't
investors snapping up these stocks (which would presumably push the
yield back down as the stock price rises)? The answer lies in the
health of their business. At the top of the list you'll find
telephone companies that may not have a long-term survival plan in
a world dominated by wireless phone companies and cable/Internet
operators. You might say the same for tobacco vendors such as
Reynolds American (NYSE:
. In effect, investors don't trust that these dividends will be
around in the future.
It may be wiser to go with high-yielding bank stocks such as
Cincinnati Financial (Nasdaq:
Hudson City Bancorp (Nasdaq:
Utility Integrys (NYSE:
offers up a respectable 5.5% yield, and although it has barely
risen in the last five years, at least it's quite safe.
Risks to Consider:
Dividend payments don't get quite as much support in a weak
. Roughly one-sixth of the companies in the S&P 500 reduced or
eliminated their dividends in 2009 -- the highest level in several
decades. Only four companies have done this so far in 2011, but any
sharp economic slowdown would likely accelerate the level of
dividend cuts or eliminations.
Action to Take-->
If you're looking for tomorrow's high yielders, then the list above
is a good place to start. Keep in mind: many companies in the
S&P 500 are boosting their dividends and buying back stock. So
dividend yields may not seem as robust as they were back in the
1970s, but the potential total return to investors (when shrinking
share counts are included in the calculus) is still quite
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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