After Recession Fright, Dividends Delight

3/14/2011


This years dividend growth is off to a fast start, with 91 companies in the S&P 500 Index either raising or initiating a dividend in the first two months of 2011 — the most since the 92 positive dividend actions during the same period in 2006. This years average dividend increase has been 14%.

Among S&P 500 stocks that raised or launched a dividend in the two months ended February, more than 25% hail from the consumer-discretionary sector. Another 15% are financials, even with the biggest U.S. banks sitting on the sidelines. Before major banks can begin restoring the dividends they cut during the downturn, the Federal Reserve wants proof they can absorb losses in the event of another economic collapse. Dividends for the S&P 500 Index totaled $206 billion last year, down 17% from 2008s record high. Largely because of the banks, it could take another two or three years to surpass the 2008 record.

Nevertheless, the dividend environment is steadily improving. The rolling 12-month total of positive dividend actions has climbed for 17 consecutive months. There were 282 dividend hikes or initiations in the 12 months ended February — the most since July 2008 and more than 60% above the same period a year earlier.

The table below lists 29 monitored stocks that have raised their dividends this year. Below, we review three of those stocks.

Comcast ($26; CMCSa) restarted its dividend in March 2008, following a nine-year hiatus. Since then, the quarterly distribution has increased 79% to $0.1125, equating to an annual dividend yield of 1.8%. Buybacks have reduced the share count by 14% over the last five years, including a 2% decrease last year. 2010 revenue grew 6% to $37.94 billion, while higher operating profit margins contributed to $5.15 billion in free cash flow, up 17%. Free cash flow has risen at an annualized rate of 32% over the last five years.

For now, chatter over cables demise is not evident in the industrys results, partly because television viewing continues to rise. Americans watched an average of 34 hours of broadcast networks and basic cable channels a week in 2010, up 1%. While the way viewers consume television has changed, Comcast has been out in front of the shift, most recently designing an application that lets subscribers watch video on their iPads.

Shares have surged 28% since the end of November, versus 12% for the S&P 500 Index. Yet Comcasts valuation remains reasonable at less than 19 times trailing earnings, a 37% discount to the five-year average. The stock also trades below five-year averages for price/sales and price/cash flow. Comcast is a Long-Term Buy.


Rogers Communications ($35; RCI), yielding 4.1%, returns nearly half of of its earnings to investors through its dividend. In February, the company announced plans to repurchase up to $1.5 billion in stock over the next 12 months, equating to more than 7% of outstanding shares. The Canadian media conglomerate cut its share count by 5% in 2010.

Revenue advanced more than 8% last year. Growth at Rogers largest segments — wireless (56% of 2010 sales) and cable (32%) — lagged gains made by its smaller media unit (12%). Within the wireless segment, average revenue per user slipped 1% to $63.03 as Rogers fended off new rivals. Conditions for 2011 should be similar. Rogers forecasts revenue will rise 11% to 17% at the media business, followed by 2% to 4% for cable and flat to 3% for wireless. Nevertheless, Rogers long-term outlook seems intact, and the company is capable of topping the consensus annual profit-growth estimate of 7% over the next five years. Rogers is a Long-Term Buy.

In February, Ross Stores ($71; ROST) raised its quarterly dividend for the 17th straight year, a 38% increase. The company also approved a $900 million share-repurchase program.

By selling clothing and apparel at 20% to 70% off department-store prices, Ross has thrived in the downturn and subsequent recovery. That advantage could extend if skittish consumers balk as traditional retailers price tags begin to reflect rising cotton costs. Ross buys more than a third of its inventory several months before it is needed. So a significant portion of Rosss merchandise is shielded, at least initially, from inflationary headwinds.

Same-store sales rose 3% in February, exceeding the consensus of 1.7% and following an 11% gain in the same month last year. Management had projected flat to 1% growth. Total revenue increased 7% for the month. With January-quarter results due out March 17, Ross is expected to report earnings of $1.37 per share, up 18%. Ross is a Focus List Buy and a Long-Term Buy.

DIVIDEND GROWERS
Of the 123 Forecasts monitored stocks that pay a dividend, the 29 below have initiated or raised their payout so far in 2011. The payout ratio reflects the dividend as a percentage of profits. An A rating equates to above average, B to average, and C to below average. Stocks recommended for purchase in bold.
---------------------------- Dividend ----------------------------
--- Quadrix Scores ---
Company (Price; Ticker)
Yield
(%)
Per
Share
($)
Last
Increase
(%)
Payout
Ratio
(%)
5-Yr.
Annual.
Growth
(%)
Quality
Overall
Dividend
Payment Dates
Rating
3M ($94; MMM)
2.3
2.20
4.8
38
5
75
70
Mar, Jun,
Sep, Dec
B
Abbott Laboratories
($49; ABT)
3.9
1.92
9.1
46
10
79
77
Feb, May,
Aug, Nov
A
Applied Materials
($16; AMAT)
2.0
0.32
14.3
26
25
83
99
Mar, Jun,
Sep, Dec
A
BlackRock ($199; BLK)
2.8
5.50
37.5
50
27
93
97
Mar, Jun,
Sep, Dec
A
Canadian Natl Railway
($75; CNI) e
1.8
1.31
21.1
34
20
81
60
Mar, Jun,
Sep, Dec
B
Coca-Cola ($66; KO)
2.9
1.88
6.8
54
9
88
75
Apr, Jul,
Oct, Dec
B
Colgate-Palmolive
($78; CL)
3.0
2.32
9.4
48
13
88
63
Feb, May,
Aug, Nov
B
Comcast ($26; CMCSa)
1.8
0.45
19.0
35
NA
76
87
Jan, Apr,
Jul, Oct
A
ConocoPhillips ($78; COP)
3.4
2.64
20.0
44
13
52
88
Mar, Jun,
Sep, Dec
A
CVS Caremark ($33; CVS)
1.5
0.50
42.9
19
19
72
56
Feb, May,
Aug, Nov
B
Energen ($60; EGN)
0.9
0.54
3.8
12
1
70
78
Mar, Jun,
Sep, Dec
A
General Dynamics
($77; GD)
2.5
1.88
11.9
28
16
79
88
Feb, May,
Aug, Nov
A
Home Depot ($37; HD)
2.7
1.00
5.8
49
19
52
65
Mar, Jun,
Sep, Dec
B
Honeywell ($57; HON)
2.3
1.33
9.9
44
8
67
54
Mar, Jun,
Sep, Dec
B
Kimberly-Clark ($65; KMB)
4.3
2.80
6.1
60
8
71
60
Jan, Apr,
Jul, Oct
C
Kohls ($54; KSS)
1.8
1.00
New
27
NA
72
75
Mar, Jun,
Sep, Dec
B
L-3 Communications
($80; LLL)
2.2
1.80
12.5
22
26
76
80
Mar, Jun,
Sep, Dec
B
Norfolk Southern ($66; NSC)
2.4
1.60
11.1
40
24
74
77
Mar, Jun,
Sep, Dec
B
Occidental Petroleum
($101; OXY)
1.8
1.84
21.1
32
19
80
89
Jan, Apr,
Jul, Oct
B
Qualcomm ($57; QCOM)
1.5
0.86
13.2
32
18
85
83
Mar, Jun,
Sep, Dec
B
Questar ($17; STR)
3.5
0.61
8.9
42
4
36
38
Mar, Jun,
Sep, Dec
B
Rogers Communications
($35; RCI) e
4.1
1.42
10.9
48
NA
96
85
Jan, Apr,
Jul, Oct
A
Ross Stores ($71; ROST)
1.2
0.88
37.5
20
25
94
95
Mar, Jun,
Sep, Dec
A
Schlumberger ($90; SLB)
1.1
1.00
19.0
35
15
84
67
Jan, Apr,
Jul, Oct
B
St. Jude Medical ($50; STJ)
1.7
0.84
New
28
NA
92
90
Jan, Apr,
Jul, Oct
A
Time Warner ($36; TWX)
2.6
0.94
10.6
39
23
45
68
Mar, Jun,
Sep, Dec
B
United Parcel Service
($73; UPS)
2.9
2.08
10.6
58
8
66
51
Mar, Jun,
Sep, Dec
B
Wal-Mart Stores
($52; WMT)
2.8
1.46
20.7
36
15
75
64
Jan, Apr,
Jun, Sep.
A
WellPoint ($68; WLP)
1.5
1.00
New
15
NA
60
80
Mar, Jun,
Sep, Dec
B
Note: Quadrix scores are percentile ranks, with 100 the best.    e Dividend and yield estimated.

 


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