As promised, this will be the year that I finally pay myself. As such, I'm always on the lookout for companies that are putting shareholders first. In 2011 we witnessed 1,953 dividend increases. Yet, as Fool contributor Morgan Housel has pointed out, the overall payout ratio of the S&P 500 remains at a record-low 29%. This means it isn't enough just to find a dividend; it's about finding a growing and sustainable dividend.
After perusing some of March's finest, I've settled on five companies that I feel went beyond the call of duty to provide for their shareholders last month by increasing their payout or initiating a dividend payment.
New Quarterly Dividend
Previous Quarterly Dividend
|Cliffs Natural Resources (NYSE: CLF )||$0.625||$0.28||123%|
|Belo (NYSE: BLC )||$0.08||$0.05||60%|
|Movado Group (NYSE: MOV )||$0.05*||$0.03||67%|
|Wells Fargo (NYSE: WFC )||$0.22||$0.12||83%|
|Apple (Nasdaq: AAPL )||$2.65||NA||NA|
Source: Individual company press releases. *Company also declared special cash dividend.
Cliffs Natural Resources
Apple may be everyone's hero right now, but my vote for dividend increase of the month goes to Cliffs Natural Resources which, through mergers and acquisitions in recent years, has compiled a strong portfolio of iron ore and metallurgical coal mines. The company feels so confident in its cash-flow generation capabilities that for the third time in just over two years, it announced a dividend increase.
Much like the previous increases, this one was a doozy -- a 123% increase. This follows its previous increases of 100% and 56% and marks a ridiculous 594% increase in its quarterly payout since February 2010. Cliffs' new capital strategy, aimed at maximizing total shareholder return, places the company's new yield at a not-so-shabby 3.5%.
For those of you who are concerned that commodity price fluctuations could endanger this dividend -- relax! Cliffs' payout ratio is only 21.7% of what it earned in 2011, so it even has room to move higher. With Cliffs predicting strong organic growth in its iron ore and coal business and the company valued at just six times forward earnings, this miner should be on everyone's radar.
For someone like me who has been distrustful of companies broadcasting growth since the recession, Belo's move early in the month to bump its dividend up 60% eased some of those worries.
Belo, the owner of 20 television stations and their associated websites, boosted its quarterly dividend to $0.08 for what will now amount to a yield of 4.5%. This new payout is still relatively conservative, considering that the five-analyst consensus estimate on Yahoo! Finance is projecting the company to earn $0.94 this year. Belo made it very clear that in addition to paying a dividend, it intends to use its cash to potentially make acquisitions or possibly even redeem $175 million in debt due in May 2013 early.
Belo is also benefitting from a perfect storm of events in 2012. This year television stations will get the added revenue benefit of a presidential campaign and the summer Olympics, which is sure to bring in advertising dollars. Research firm MagnaGlobal is predicting a 3.7% rise in advertising dollars over last year. In addition, the sector has been abuzz with M&A activity. Sinclair Broadcasting and E.W. Scripps have both been on an acquisition binge since last fall, and that's creating optimism throughout the entire sector. This stock is suddenly looking Belo-lissimo!
A lot of people forget that prior to the recession, Movado Group was well on its way to becoming a dividend champion. But as with many consumer products, Movado's sales fell through the floor as discretionary spending dried up in 2009. The good news for investors is that Movado is back, and its bottom line is looking stronger than ever.
Movado's new quarterly payout of $0.05 boosts its yield to 0.8%. I know that may not seem impressive now, but keep in mind that Movado also declared a special cash dividend of $0.50, which is payable in May. This payout trounces even Movado's highest year of distributions in 2008, when it paid out $0.32.
The driving force behind Movado's growth has been strength in the Swiss watchmaking industry. Personally, as a watch collector this brings a smile to my face. Based on data from the Federation of the Swiss Watch Industry, February showed a double-digit increase in movements being exported and an even greater boost in dollar value. In short, more wristwatches and movement are being exported, and companies are able to charge higher prices for these products. If you're curious whether Movado's strength will continue, look no further than the strength we're currently witnessing in Swiss watch sales.
While I could just as easily have substituted any other bank in this spot, as the majority of them passed the Federal Reserve's stress test in March, Wells Fargo, the Oracle of Omaha's favorite bank, gets my nod.
I think Wells Fargo is probably the safest bank among its peers, and the 83% hike in its dividend proves this point. With its new $0.22 quarterly payout, Wells Fargo is now yielding 2.6%, which is, unsurprisingly, exactly what JPMorgan Chase is yielding.
Whereas most banks are trading at or below book value, Wells Fargo is valued at 138% of book. I don't think this overvalues Wells so much as it demonstrates how fiscally strong the company is. It's one of the few banks that produced an annual profit even during the worst economic downturn in 70 years, and based on its new annual dividend, it has a lot of room to give back even more to shareholders with its payout ratio of just 31% based on last year's EPS. The banking sector isn't without its mid-afternoon drama now and then, but Wells is clearly the safest of the group.
Just in case you've been living on Mars, Apple decided last month that it was finally ready to return some of its cash hoard to its shareholders. With $97.6 billion currently sitting in its coffers, Apple initiated a quarterly payout of $2.65 and implemented a share repurchase program totaling $10 billion, which will commence in fiscal 2013.
This move by Apple, which places its new yield at 1.8%, was highly anticipated. The current payout ratio of 24% based on analysts' fiscal 2012 EPS projections seems modest when you consider that, even after the quarterly stipend, Apple should still be growing its cash pile by approximately $10 billion per quarter, assuming its growth rate stays relatively stagnant (which it certainly has not). This leaves a vast amount of room for this dividend to rocket even higher.
Recent data from Apple suggest that growth within the company is only accelerating with the introduction of new product. The new iPad sold more than 3 million units within its first three days on the market, and iPhone 4S sales more than doubled to 37 million units in Apple's latest quarter. It's nearly impossible to argue against growth like this, and I'd find it difficult not to see this dividend inching higher in the future.
Finding great dividends is all about value, growth, and sustainability, and these five companies definitely exhibited that in March. Consider adding these names to your free and personalized watchlist so you can keep track of the latest news on each company.
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- Add Cliffs Natural Resources to My Watchlist.
- Add Belo to My Watchlist.
- Add Movado Group to My Watchlist.
- Add Wells Fargo to My Watchlist.
- Add Apple to My Watchlist.