It's official: According to Howard Silverblatt at Standard & Poor's, the first four months of dividend increases in 2011 have already surpassed total dividend increases for the full year of 2010. In total, the 500 largest firms on Wall Street have increased their payouts by nearly $21 billion so far this year, a massive upswing in the cash that companies are willing to part with for the benefit of their shareholders.
But the dividend hikes that companies are paying out right now are even more significant than that massive $21 billion number suggests.
Historically, statistics show that dividend stocks are about much more than just income payouts. On a total return basis, they significantly outperform their non-payer peers as a whole.
Over the last 36 years, dividend stocks outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to a study from NDR.
We regularly take a look at income stocks paying out cash to investors. With that, here's a look at five significant dividend payment boosts.
We'll start our list with the company that pushed 2011's dividend hikes over 2010's numbers, Exxon Mobil ). On Wednesday, Exxon Mobil increased its dividend 7% to 47 cents per share — in absolute cash, the increase represents a $149 million increase in its total payouts to shareholders and brings the stock's total yield to 2.17% based on current share prices.
One of the biggest tailwinds for Exxon Mobil has been the fast ascent of oil prices. Crude has rallied double-digits year to date, a price increase that has a direct positive effect on this supermajor's bottom line.
While poor-performing natural gas prices have been a drag on the company's earnings, particularly given Exxon's increased exposure to it in the last couple of years, the buoyancy of the firm's more lucrative businesses have more than made up for it.
As one of the biggest energy companies in the world, finding new sources of growth is going to continue to be a challenge for management. While increasing commodity prices do bode well for the company, investors shouldn't expect substantial increases in oil prices to continue into perpetuity.
Challenges aside, Exxon will remain a promising core holding for any income investor — particularly those looking for exposure to the commodity market. (For another look at Exxon, look back on a recent technical view of the stock.)
While inflation isn't much of a concern for a firm such as Exxon, it is a major source of margin anxiety for household products manufacturers like Kimberly-Clark ). Last week, Kimberly-Clark made news when it announced that it was raising prices to combat increasing input costs for its products.
The move didn't exactly come as a surprise, but does pose a worrying precedent for KMB shareholders who've seen their holdings threatened by competition from private label brands.
But increasing prices haven't kept Kimberly-Clark, one of the top-yielding consumer non-durables stocks, from increasing its dividend. The firm announced a 6.1% dividend hike this past week, raising its quarterly payout to 70 cents per share. That puts the firm's yield at a hefty 4.3%.
Backing Kimberly-Clark's dividend is a nearly spotless balance sheet, and a product portfolio that lays claim to an array of popular brands such as Huggies, Kleenex and Scott.
Even though rising input prices and cost pressures on store shelves are contributing to a tough operating environment for Kimberly-Clark, neither is a new phenomenon. As such, this stock should also remain a thoroughbred core income holding for most investors.
Kimberly-Clark is one of TheStreet Ratings' top-rated household products stocks.
Chemical and glass maker PPG Industries is another firm that's seeing pressure from rising input costs right now. Luckily for shareholders, better sourcing and high sales volume both offset the negative impacts of inflation on PPG's income statement in the first quarter of 2011. Now, the firm's ability to raise prices could be key to its continued attractiveness as an investment.
Because PPG boasts a fairly specialized set of offerings, its customers do face somewhat higher switching costs than household goods firms like Kimberly-Clark. That should give PPG the added pricing power it needs to deal with rising costs of goods sold. Like KMB, PPG currently sports a strong dividend yield (2.43%) and offers investors significant cash generation capabilities.
Consider the firm's 3.6% dividend hike evidence of comfortable operations in this higher-cost environment. PPG is one of the top-yielding chemicals stocks and a top holding of Ken Fisher, with a 6.3 million-share position as of the most recently reported period.
One company that doesn't face rising costs right now is Wells Fargo ), the banking giant that's been on analysts' sweetheart list since the depth of the recession. Wells' costs got a boost on Thursday following the Fed's announcement to keep rates low. With the cost of borrowing cheaper than ever (and the credit liquidity spread as wide as ever), this stock should be able to continue performing at high levels in 2011.
Wells Fargo made all the right moves in recent years, focusing on its core banking business by growing its deposit base (with help from a dirt-cheap Wachovia acquisition) and shoring up the quality of its loan book. Dividend investors take note, though: Wells is a big bank, so its ability to payout cash to shareholders is restricted by Fed approval. That means that Uncle Sam ultimately has final say over whether you're allowed to collect a dividend check.
Luckily, the Fed gave the firm the green light to hike its then-meager payout by 140% last week. That makes Wells the biggest dividend increaser of the week. More importantly, the move puts its quarterly payout at 12 cents per share, a wholly sustainable level given the bank's fundamental performance.
Wells was highlighted recently as one of five stocks with key insider buying.
Last up this week is health insurer Aetna ). Aetna's having a stellar year so far in 2011 — shares have already rallied more than 36%, capped off by a sizable post-earnings rally and a 15-cent quarterly dividend. That dividend, announced in February and paid out to shareholders on Friday, represents a significant increase from Aetna's nominal 4-cent annual dividend in 2010.
As the third-largest managed care organization in the U.S., Aetna was subject to considerable uncertainty during the height of the health reform debate. But now that attention has largely been diverted to the economy (while political bickering continues on a smaller scale), investors should be able to regain some comfort over Aetna's operations.
That said, while this firm is a good option for diversification-hungry income investors, I'd fill my income portfolio with standard-bearers such as XOM and KMB first.
(For the rest of this week's dividend stocks, check out the Dividend Stocks for the Week portfolio on TheStreet's Stockpickr.)
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.
TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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