With record cash in their coffers and investors eager to make up for a lost year in 2011, dividend stocks are paying out even more cash this month.
Even though the broad market is testing its post-recession highs this week, investors are still focused on income, and for good reason. It's earnings season, after all, a time that holds special significance for income investors: It's the period each quarter when companies announce their profits to Wall Street, as well as the dividends that those profits are paying for.
This year, the first quarter of earnings is looking especially attractive.
That's because even though stocks are testing those highs from last April, corporate profits are around 9 percent higher than they were at that time last year. Dividend growth has outpaced even that in the last 12 months — payouts to shareholders are up around 16 percent in the last year. The result is a bargain opportunity in U.S. stocks right now.
Dividend payers look like some of the best bargains out there. That's because, historically, their payouts account for the lion's share of investors' returns. That's why we're taking a closer look at seven dividend stocks raising their payouts in February.
Over the last 36 years, dividend stocks have outperformed the rest of the S&P 500 by 2.5 percent annually, and they outperformed nonpayers by nearly 8 percent every year, all while paying out cash to their shareholders, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
That's why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here's a look at seven of the stocks that hiked payouts in the last week.
The past year has shown some stellar performance for retailer TJX , the firm behind chains such as T.J. Maxx, Marshall's and HomeGoods. Shares of the firm have rallied more than 43 percent in the last 12 months, spurred on by fundamental success in its brick-and-mortar stores.
On Wednesday, management announced a 21 percent increase in its quarterly dividend, bringing it to 11.5 cents per share. That's the 16th straight year of dividend hikes for TJX shareholders.
TJX is a league leader in off-price retail. The firm's stores stock major brand name clothing, accessories and housewares at prices that are fairly dramatic discounts to their retail costs, a model that's proven popular in the shadow of a major global recession.
TJX has reasonable pricing power with consumers — if retail prices rise, so too can the discounted price tags on TJX's shelves. At the same time, full-price retailers need TJX because the firm is willing to buy massive swaths of excess inventory.
Full-price retailers can bypass the middle man by opting to sell last season's fashions at their own outlet stores, but for most it's not a feasible model. Retail is extremely capital intense, and TJX provides a top-line boost to its suppliers with zero risk. Those factors should keep quality inventory flowing to TJX's stores for the foreseeable future.
To be clear, the firm's 1.06 percent yield hardly makes it a core income holding. That said, for exposure to discount retail, the firm is hard to beat.
Diversified pharmaceutical firm Abbott Labs , another of 2012's "Dividend Opportunity" stocks, is another name that hiked its payouts last week, ratcheting its dividend by 6.25 percent to 51 cents per share. That's a 3.62 percent yield at current levels.
While Abbott generates the majority of its sales though pharmaceuticals, the firm's exposure to medical devices and nutritional products makes the firm much more diversified than most of its peers. In a time where patent drop-offs are scaring investors away from big pharma more than ever before, Abbott's exposure to side businesses should look especially attractive.
That won't be the case for long, though — Abbott is planning on splitting its pharmaceutical arm off from its health-care business. The move should squeeze some added returns out of the business at the risk of much more concentrated sector risk.
That said, the risks are a moot point for shareholders who own Abbott now; they will get shares of both companies.
On the other hand, current shareholders will also get to benefit from the value that's unlocked from the deal. In a market where valuations are under pressure, a sum-of-the-parts valuation is often less attractive than breaking businesses up. The move will boost margins at the pharmaceutical arm and make it more directly comparable with big pharma peers.
Ample balance sheet liquidity should keep dividends rolling for ABT shareholders.
In the fourth quarter, Fortress Investment Group initiated a new position in Abbott, which is also one of Ken Fisher's top holdings.
Cable operator Comcast tips the scales as the largest firm in the cable industry. As a utility, geographic footprint means everything — that's why a network that spans 53 million households is such a powerful asset.
The joint venture deal to purchase half of NBC Universal, parent of CNBC, is another; it gives Comcast a massive content vault and significant broadcast assets, two things that cable companies are stumbling over themselves to access as rival firms start offering streaming content services.
The cable business is changing dramatically right now. Today, Comcast's network can provide consumers with everything from traditional television service to phone and high-speed Internet, allowing the firm to make both a convenience and value argument for houses to switch to its triple-play offering.
On the other hand, Comcast isn't alone in its abilities - the firm now faces increased competition from the likes of Verizon's and AT&T, companies that boast long-reaching networks of their own.
From a sales standpoint, Verizon's cutting-edge FiOS network poses the biggest challenge for Comcast in the long-term. But shorter-term, the insanely high cost of implementing that network evens the playing field a bit.
Last week, Comcast announced a 44.4 percent increase to its dividend payout, making it a quarterly 16 cents per share. That gives Comcast a 2.18 percent yield and makes the firm one of the biggest dividend hikes of the week on a percentage basis.
Allstate is having a good year in 2012 — the firm has seen its shares rally more than 15 percent so far year-to-date, outpacing the by a factor of nearly two. A lot of that success is coming from the growth of the firm's car insurance business, a line that's helped to maintain profits as Allstate reduces its exposure to home insurance.
Risk is a four-letter word for Allstate right now. With low interest rates and significant underwriting competition, the firm has little wiggle room if it misprices the risks that it's insuring. Catastrophic losses from the homeowners insurance segment have been a thorn in Allstate's side for a while now — by winding down its exposure to that segment in favor of the more predictable auto insurance business, investors should be able to see the firm's margins expand in the mid-term.
Since the financial crisis, Allstate has done a good job of shoring up its capital base and filling any gaps in its balance sheet. Today, with strong cash flow generation from premiums, the firm should be able to keep churning out its dividend for the foreseeable future.
On Tuesday, Allstate raised its dividend by 4.76 percent to 22 cents per share. That gives the firm a 2.79 percent yield right now.
Chipmaker Analog Devices is the leader in the market for chips that translate between analog and digital signals, an implementation that's found in everything from cell phones to cars. In total, ADI serves more than 60,000 customers worldwide, a broad customer base that exempts the firm from worrying about the fortunes or decisions of a single major customer.
Analog chips are a niche business that's often an afterthought for OEMs that are developing the products that they're used in. For that reason, firms like ADI are much less likely to face risks of internal development among their customers. It just makes more sense for OEMs to buy temperature sensors or accelerometers from ADI than it does to try to develop those chips in-house. A wide portfolio of proprietary analog chip designs should help to defend ADI's share of the market.
Financially, Analog Devices is in stellar shape, with a deep net cash position and substantial cash flow generation abilities. That's part of the reason why the firm was able to increase its dividend payout by 20 percent on Wednesday. The move puts ADI's yield at a very attractive 3.05 percent right now.
Income investors looking for tech sector exposure should put this stock near the top of their lists.
Public Service Enterprise Group
With a name like Public Service Enterprise Group , you know that you're about to look at a boring business. But as a dividend investor, that's actually a good thing.
PEG is an energy company that owns a regulated utility as well as a merchant power generation arm and an energy investment business. For investors in search of stable high yields, it's hard to go wrong with a power utility.
Like other regulated utilities, PEG boasts legal monopoly status in its New Jersey operating region. Even though wholesale merchant energy sales in other parts of the Northeast add an uncertainty factor to a large part of the firm's operations, investors benefit from a healthy balance between consistent income generation and commodity price-driven growth potential.
On the utility side, PEG's footprint in New Jersey is particularly attractive given the state's high demand for power.
From a financial standpoint, it's important to remember that the power business is extremely capital-intense. To counter that, the firm has paid down debt in recent years and, as of last quarter, built up a more meaningful cash balance at the top of its balance sheet. That should help give Wall Street some assurance over PEG's dividend, which saw a 3.65 percent increase on Tuesday. The move brings the firm's yield to a hefty 4.7 percent.
Investors looking for power utility exposure should consider PEG a good core income holding.
Paint and coating manufacturer Sherwin-Williams is in rally mode right now, breaking through the $100 mark in yesterday's session to close just shy of $101. That's not the only way investors are seeing returns from this stock right now — last week, SHW announced a 6.85 percent increase to its quarterly dividend. The move puts the firm's total yield at 1.55 percent right now.
Sherwin-Williams has a unique model for a paint company. Yes, the firm owns an attractive portfolio of brands that range from its namesake label to Dutch Boy, Krylon, and Thompson's Water Seal. But what's really interesting are the nearly 3,400 company-owned paint stores that span North America. Owning stores isn't a cheap proposition, but it does increase customer stickiness, a crucial factor for success in the age of the big-box hardware store.
While the recession (and its impact on construction-centric stocks) did have an outsized impact on Sherwin-Williams, the firm has rebounded hard in recent years, closing 2011 with sales that were well in excess of pre-recession highs. With a rock solid balance sheet and palpable growth right now, this stock paints an attractive picture for investors — even if it doesn't qualify as a core income holding.
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