Dividend Trend A Friend Again

6/14/2010


While 2009 was a horrid year for dividends, 2010 is shaping up a lot better.

So far, 127 members of the S&P 500 Index have raised or initiated dividends this year, up from 87 at this point last year. Only two companies have cut or suspended dividends, well below the 60 at this point last year. To put 2009 into perspective, during the same periods in 2004, 2005, 2006, and 2007, the number of negative dividend actions never exceeded seven.

The Forecasts has long been a fan of stocks that raise their dividends, an action that tends to reflect financial strength and management’s confidence in the future. Of the 114 dividend-paying stocks on the Forecasts’ Monitored List, 46 have raised dividends so far this year. Four of our favorites are reviewed below.

Abbott Laboratories’ ($46; ABT) dividend yield is rich (3.8%) and its growth steady (38 straight years of higher payouts). Based on the drugmaker’s recent operating momentum and sturdy balance sheet, dividend growth should continue. Free cash flow surged 38% over the last year, while operating profit margins have widened.

In May, Abbott gained approval from European regulators to market a new catheter to treat coronary-artery disease. Results of a two-year study indicate that Abbott’s MitraClip offers a durable treatment option to repair the most common type of heart-valve problem. Abbott will also receive a $30 million milestone payment from Biogen Idec ($47; BIIB) as the two begin a late-stage study of daclizumab, a treatment for multiple sclerosis.

In June, Abbott received approval from the U.S. Food and Drug Administration to market a diagnostic test for ovarian cancer. The FDA also agreed to consider an experimental drug for which Abbott owns the licensing rights. The drug is designed to treat a neuropathic pain syndrome that usually follows an outbreak of shingles.

Separately, Abbott agreed to purchase the generic-drug business of India’s Piramal Healthcare in a $3.72 billion cash deal. The price is viewed as somewhat rich, but Abbott will gain a 7% share of India’s highly fragmented branded generic-drug market. Abbott is a Buy and a Long-Term Buy.


Lubrizol ($81; LZ) held its quarterly dividend at $0.26 per share for a decade before resuming growth in 2007. Citing confidence in its earnings and cash flow, Lubrizol raised its quarterly dividend 16% to $0.36 per share in April. Operating margins widened over the past year, and operating cash flow jumped 160%.

Consensus per-share-profit projections call for 15% growth to $8.65 this year on 13% higher sales, and estimates are rising. The company says it expects per-share earnings of $10.00 by 2012. Lubrizol says two-thirds of its projected growth should come from core operations, largely on expansion in current markets. Acquisitions and changes in the product mix should supplement growth.

The stock earns a Quadrix® Value score of 93 and trades at nine times trailing earnings, well below the five-year average P/E of 15. With an Overall Quadrix score of 99, Lubrizol is a Buy.


Over the last three years, Stryker ($51; SYK) raised its dividend at an annualized rate of 40%. The dividend represents less than 20% of trailing earnings, leaving Stryker a lot of flexibility to keep growing the payout. Stryker, a maker of medical devices and orthopedic implants, has historically delivered the kind of operational growth that can support consistently higher payouts. Sales rose at double-digit rates for eight consecutive years before slipping to a 1% increase in 2009.

The consensus projects sales growth of 9% this year and 8% next year, with per-share-profit growth of at least 11% both years. Despite that growth, Stryker trades at less than 17 times trailing earnings, a discount to both the industry average and its own historical norms. Stryker is a Buy and a Long-Term Buy.


TJX’s ($45; TJX) quarterly dividend, currently $0.15 per share, has grown at a 24% annual clip over the past decade. Initiated in 1994, the dividend has risen every year since 1997. TJX supplements the dividend with a stock-repurchase program that has helped lower the share count by 13% over the last 12 quarters. TJX plans to repurchase between $900 million and $1 billion in stock in fiscal 2011 ending January. The discount retailer holds $4.80 per share in cash, up 86% from a year ago. Strong free cash flow, up year-over-year in each of the last five quarters, bodes well for continued dividend growth.

Discounters were one of few bright spots in a lackluster May for retailers. TJX reported 4% higher same-store sales for the month, building on a 5% gain in the same period a year ago and exceeding the consensus estimate of 2.7%. TJX, yielding 13%, is a Buy and a Long-Term Buy.

DIVIDEND GROWTH TRACKER
All 46 of the stocks below have raised their dividends since the start of December. A rating of A means above average, B means average, and C means below average. Stocks recommended for purchase are presented in bold.
Indicated
Annual
Div.
($)
Last
Dividend
Hike
(%)
Dividend
—– Growth –—
Company (Price; Ticker)
Yield
(%)
3 Yrs.
(Ann.)
(%)
10 Yrs.
(Ann.)
(%)
Quadrix
Overall
Score *
Advice
3M ($75; MMM)
2.10
2.8
3
3
6
88
A
Abbott Laboratories
($46; ABT)
1.76
3.8
10
12
10
78
A
Applied Materials
($12; AMAT)
0.28
2.3
17
8
NA
56
C
AT&T ($25; T)
1.68
6.7
2
6
5
77
B
Bristol-Myers Squibb
($24; BMY)
1.28
5.3
3
5
3
82
B
Canadian Nat’l Rail.
($57; CNI) e
1.08
1.9
7
14
22
92
B
Chevron ($71; CVX)
2.88
4.1
6
9
8
84
A
Colgate-Palmolive
($79; CL)
2.12
2.7
20
16
13
70
A
Comcast
($17; CMCSa)
0.38
2.2
40
NA
NA
92
A
ConocoPhillips
($51; COP)
2.20
4.3
10
11
12
69
B
Costco Wholesale
($57; COST)
0.82
1.4
14
14
NA
75
B
CVS Caremark
($31; CVS)
0.35
1.1
15
19
12
89
A
Deere ($55; DE)
1.20
2.2
7
12
11
61
B
Energen ($45; EGN)
0.52
1.2
4
5
5
79
A
Exxon Mobil
($61; XOM)
1.76
2.9
5
10
7
68
B
FedEx ($79; FDX)
0.48
0.6
9
20
NA
36
C
Freeport-McMoRan
($61; FCX)
1.20
2.0
NA
(24)
NA
95
A
General Dynamics
($63; GD)
1.68
2.7
11
17
13
85
A
General Mills
($75; GIS)
1.96
2.6
4
10
6
69
A
Heinz ($45; HNZ)
1.68
3.7
0
5
1
57
B
Home Depot
($32; HD)
0.95
3.0
5
2
20
69
B
Intel ($20; INTC)
0.63
3.1
13
13
27
97
A
IBM ($124; IBM)
2.60
2.1
18
23
18
90
A
Johnson & Johnson
($59; JNJ)
2.16
3.7
10
11
14
72
A
Kimberly-Clark
($62; KMB)
2.64
4.3
10
9
10
73
A
L-3 Communications
($79; LLL)
1.60
2.0
14
20
NA
79
A
Lowe’s ($23; LOW)
0.36
1.5
22
16
27
63
B
Lubrizol ($81; LZ)
1.44
1.8
16
9
3
99
A
Nucor ($41; NUE)
1.44
3.5
3
(16)
27
17
C
Occidental Petroleum
($80; OXY)
1.52
1.9
15
32
12
75
B
PepsiCo ($63; PEP)
1.92
3.1
7
22
13
76
A
Pfizer ($15; PFE)
0.72
4.9
13
(13)
8
51
B
Procter & Gamble
($62; PG)
1.93
3.1
9
13
12
68
B
Qualcomm
($35; QCOM)
0.76
2.2
12
13
NA
86
B
Raytheon ($50; RTN)
1.50
3.0
11
15
6
87
A
Rogers Commun.
($34; RCI) e
1.18
3.5
10
98
NA
99
A
Ross Stores
($55; ROST)
0.64
1.2
45
42
25
99
A
Starbucks
($26; SBUX)
0.40
1.5
NA
NA
NA
93
A
Stryker ($51; SYK)
0.60
1.2
50
40
34
79
A
Teck Resources
($31; TCK)
0.40
1.3
NA
(24)
NA
97
B
Time Warner
($30; TWX)
0.85
2.8
13
8
NA
79
B
TJX Companies
($45; TJX)
0.60
1.3
25
23
24
97
A
United Parcel Service
($59; UPS)
2.00
3.4
11
7
12
60
C
United Technologies
($64; UTX)
1.70
2.6
10
15
16
73
B
UnitedHealth Group
($31; UNH)
0.50
1.6
1,567
155
NA
88
B
Wal-Mart Stores
($51; WMT)
1.21
2.4
11
22
19
79
A
NA Not Available because the company did not pay a dividend during the historical period.     e Dividend and yield estimated.      * Percentile ranks, with 100 the best.

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