Who's Next On The Dividend Train?

5/21/2012


Apparently, it's once again cool to pay dividends. In the first four months of the year, 160 S&P 500 Index components raised or initiated dividends, the best start in at least eight years.

With cash positions of S&P 500 Index members up to $3.8 trillion — double the level eight years ago — many companies are in an excellent position to initiate or boost dividends. Dividends in the 12 months ended in March represent just 28% of earnings for index components, well below the average of 39% since 1988. Even notorious cash-hoarder Apple ($553; AAPL) got into the game in March.

What other companies are likely to either begin paying dividends or pad their paltry payouts? Of course, dividend policy comes from the board of directors, and it is impossible to predict when a longtime holdout will decide to change its tune. But the market is increasing the pressure on companies to beef up their dividends. Below we present some likely candidates — companies with the ability to pay (strong profit and cash-flow growth and sizable cash balances) and that face considerable peer pressure (at least 25% of the stocks in the industry already pay dividends).

GOOD CANDIDATES FOR DIVIDEND INITIATIONS, HIKES
Stocks recommended for purchase are presented in bold.
--- 5-Yr. Growth ---
Company (Price; Ticker)
EPS
(%)
Oper.
Cash
Flow
(%)
Free
Cash
Flow
(%)
Cash
Net Of
Debt
($Bil.)
Cash As %
Of Market
Value
Industry
% Of
Industry
Paying
Div.
Non-Dividend-Payers
Apollo Group
($32; APOL) 
13
10
13
1.0
27
Semi-
conductors
59
Bed Bath & Beyond
($71; BBBY)
14
15
27
1.8
10
Specialty
Stores
53
BMC Software
($45; BMC) 
15
14
15
0.7
10
Systems
Software
27
Dell ($15; DELL)
11
7
10
5.6
20
Comp.
Hardware
29
Dividend-Payers Yielding No More Than 1%
MasterCard
($414; MA)
36
32
35
5.2
10
Data
Processing
58
Mosaic ($47; MOS) 
65
31
20
2.1
15
Chemicals
83
Oracle
($27; ORCL)
20
22
20
15.0
11
Systems
Software
27
Visa ($117; V)
28
64
70
8.1
13
Data
Processing
58

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