With half of 2011 officially in the books, it's now time to look back at the second quarter, just as we did with the first, to uncover its true dividend standouts.
Why should you care about dividend payouts? According to Standard & Poor's, in the first quarter the amount of companies currently paying a regular cash dividend increased from 37.9% to 39.3%, but the overall yield paid to investors actually fell slightly, from 2.41% to 2.39%. This means it's getting harder to find quality dividend payers although the field of paying companies is increasing.
Also, as fellow Fool Morgan Housel elaborates, stock buybacks are vastly outpacing dividend growth rates. A staggering 219 companies in the S&P 500 spent more on buybacks in the second quarter than they did on dividends. While you could easily argue that stock buybacks favor shareholders, I'd much rather have a guaranteed quarterly cash payment coming my way.
For that reason, I've selected the following seven companies as my second-quarter dividend champions. These companies come from a diverse range of sectors, but they all share one belief: Investors come first.
Percentage of quarterly dividend hike
|Chevron (NYSE: CVX )||3.1%||28%||8%|
|Alliance Resource Partners (Nasdaq: ARLP )||4.7%||46%||3%|
|Newmont Mining (NYSE: NEM )||1.5%||12%||33%|
|Tiffany (NYSE: TIF )||1.5%||33%||16%|
|Tower Group (Nasdaq: TWGP )||3.2%||15%||50%|
|Dr Pepper Snapple Group (NYSE: DPS )||3.1%||43%||28%|
|Cypress Semiconductor (NYSE: CY )||1.8%||58%||N/M|
This impressive list of growth can essentially be broken down into three categories: the steady growers, the dramatic pops, and the up-and-comers.
The steady growers
- Chevron: Oil offers nearly guaranteed dividend income growth, regardless of economic conditions. From heating oil for our homes to fuel for our cars, we need oil, regardless of overall economic conditions. Thus, it's no surprise that Chevron has delivered such regular dividend increases to shareholders. Its payout boasts a steady 6.1% compounded annual growth rate over the past five years. Currently yielding 3.1% with a very low payout ratio of 28%, Chevron's dividend appears very safe moving forward.
- Alliance Resource Partners: The only returning company from the first-quarter dividend champions list, Alliance shares many similarities with Chevron. While Alliance doesn't deal in oil, it does provide coal to power U.S. electrical plants. With energy generation always crucial, this company's products will always be in demand. With 25 dividend increases over the past 10 years, and a staggering five-year compounded dividend growth rate of 14.1%, it should be no surprise why Alliance is back on this list.
The dramatic pops
- Newmont Mining: Who said mining companies were a dividend wasteland? Certainly not Newmont, which became the first company to float its quarterly payout based solely on the average selling price for spot gold during the quarter. This payout depends on gold prices' continued rise, but it also gives shareholders the potential for rapid appreciation. During the quarter, Newmont raised its dividend by a clean 33%; it now pays double what it paid out in the year-ago period. Considering that the company will boost its dividend by $0.20 for every $100 increase in the price of gold, all I can say to the shiny yellow metal is, "Go, baby, go!"
- Tiffany: Whatever pullback Japan's earthquake might have caused looks moot when you consider the strength of the Tiffany brand name. In a rough retail environment, the company has not been shy about raising both its earnings estimates and its dividend. Figuring in the recently announced quarterly dividend boost from $0.25 to $0.29, Tiffany has now raised its dividend an eye-popping 625% since 2003. With a payout ratio of only 33%, there's still plenty of room for this dividend to potentially move even higher.
- Tower Group: Property and casualty insurance isn't an exciting business by any means, but dividend increases like the one we witnessed from Tower Group this quarter will get any investor pumped. Already trading below book value, and priced attractively at less than eight times forward earnings, it's not rocket science to see why Tower made my list of 10 small caps to rule them all. The 50% dividend hike this quarter? Now that was just gravy! Tower has also increased its quarterly payout by 652% over the past five years. Those figures are enough to make anyone hug their insurance agent.
- Dr Pepper Snapple Group: It didn't take long for Dr Pepper Snapple to double its dividend after being spun off by Cadbury in 2008. After just six quarters as a dividend-paying public company, Dr Pepper Snapple has rewarded shareholders with a quarterly payout jump from $0.15 to $0.32 per share. This dividend hike actually gives Dr Pepper Snapple a higher yield, at 3.1%, than rivals Coca-Cola and PepsiCo, which are hovering at or just under 3%. Projected to grow at 9% over the next five years, and supported by a payout ratio of only 43%, Dr Pepper Snapple's dividend looks like a solid bet for years to come.
- Cypress Semiconductor: Cypress is the only true newcomer to the list. The semiconductor company, which has been consistently growing revenue by double digits, launched a quarterly dividend of $0.09, which translates into a dividend yield of 1.8%. If the company can hit current analyst projections, its payout ratio for 2012 would be a modest 24%. While countless semiconductor stocks are sitting on their cash, Cypress is taking the initiative to reward shareholders who've stuck with the company even after it spun off SunPower.
We could arguably include a lot more than just the seven companies discussed above, but it's easy to see now why these companies could be a great addition to any dividend investor's portfolio.
What dividend companies are rewarding you the most? Share your ideas in the comments section below, and consider reading our free report on 13 high-yielding stocks you can buy today.