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 recently hit 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 July'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
|Marathon Petroleum (NYSE: MPC )||$0.35||$0.25||40%|
|Mosaic (NYSE: MOS )||$0.25||$0.125||100%|
|Seagate Technology (Nasdaq: STX )||$0.32||$0.25||28%|
|Expedia (Nasdaq: EXPE )||$0.13||$0.09||44%|
|Phillips 66 (NYSE: PSX )||$0.20||None||NM|
Source: Bloomberg, individual press releases. NM = not meaningful.
We occasionally hear the argument that breaking a company into two or three separate components will unlock shareholder value, and then promptly roll our eyes. Well guess what: It worked!
Marathon Oil separated from Marathon Petroleum last year and both companies are rewarding their shareholders with rising dividends, albeit the upstream operations (Marathon Oil) are relatively flat year-over-year, while Marathon Petroleum's share price is up by more than 30%! Widening crack spreads since late 2011 and steady oil demand without an oversupply has led to healthy profits and solid margins. This translates into Marathon Petroleum's second dividend boost in the past year -- this time a whopping 40% to $1.40 annually. The new yield is just shy of 3%, and the combination of Marathon Oil and Marathon Petroleum is paying out $0.52 quarterly ($0.17 from Marathon Oil, $0.35 from Marathon Petroleum) compared to just $0.25 quarterly prior to the split!
Last month it was Agrium, and this month it's Mosaic's turn! Fertilizer maker Mosaic continues to benefit from the warmer weather which encouraged farmers to plant crops earlier this year. With drought conditions wreaking havoc on many crops, the need for nutrients is only going to increase, which puts the ball squarely in Mosaic's court.
In its latest quarter, despite a 22% drop in net income, Mosaic noted that phosphate prices are likely to improve after falling, and demand for fertilizer should remain high. This was confirmed a few days later when Agrium boosted its forecast due to an increase in demand. In response, Mosaic chose to reward its shareholders with a doubling of its quarterly payout to $0.25!
Mosaic's new yield of 1.8% may not seem like much, but considering that the company has increased its payout by 150% and 100% in two consecutive quarters and is still paying out just 20% of its forward earnings as a dividend, it's not a far-fetched idea to think more increases are on their way!
Would you like to own a business for practically nothing? Then I suggest you heed my advice from last month and take a closer look at disk-drive specialist Seagate Technology.
The company recently warned that quality control issues relating to flooding in Thailand and supply chain issues would cause margins and revenue to miss the mark in the fourth quarter. In spite of this miss, the company is still valued at just four times forward earnings and boasts $2.1 billion in cash (as well as $2.9 billion in debt) while cranking out healthy profits.
In order to unlock shareholder value in a relatively commoditized industry, Seagate has undertaken heavy share buybacks -- it recently added $1 billion on top of the $2 billion it authorized in 2010 -- and a steady regimen of dividend increases. Its latest boost raises the company's projected yield to a robust 4.3% and continues a streak of big dividend hikes since the recession.
Source: Dividata. Seagate suspended its quarterly dividend between February 2009 and April 2011. *Assumes quarterly payout of $0.32.
Expedia looks well on its way to becoming the next priceline.com after blowing Wall Street's estimates out of the water (or should it be out of the skies?) two weeks ago. The company, which spun off TripAdvisor less than a year ago, is completely reliant on leisure travel to drive growth. Thankfully, people continue to spend!
For Expedia, its latest quarter signaled 11% growth from leisure customers, and 62% growth from its much smaller corporate segment. Although hotel average revenue per room declined marginally, consumers' willingness to travel keeps pushing Expedia far past everyone's expectations. Things are so good that the company recently boosted its quarterly payout by 44% to $0.13. Although the new yield is just 0.9%, take into account that the stock has doubled in just over three months as well!
Expedia's very modest 2012 estimated payout ratio of 18% signals it'll reinvest heavily in the business, continue to look for acquisitions, and will likely boost its dividend much higher in future quarters.
Finally, just to test your attention span, do you remember how I talked about two minutes ago about unlocking shareholder value through spinoffs? Well, say hello to Phillips 66, a downstream spinoff of ConocoPhillips that recently initiated a quarterly dividend of $0.20.
The entire purpose of the spinoff was to maximize shareholder value by separating the companies into unique identities, giving investors a clearer definition of what the companies do, and giving income investors and growth investors a clear path to which avenue they should take to get their share of Conoco's oil and gas operations. Just like Marathon, prior to the split, ConocoPhillips was paying $0.66 in quarterly dividends. Now, with the initiation of a $0.20 dividend from Phillips 66, shareholders of the two are raking in a combined $0.86 each quarter! Not half-bad considering the quarterly payout was just $0.31 in 2005!
With the same story here (widening crack spreads and increased energy demand), Phillips 66 looks well on its way to pleasing shareholders with its new 2.1% yield.
Finding great dividends is all about value, growth, and sustainability, and these five companies definitely exhibited that in July. Consider using the links below to add these names to your free and personalized watchlist so you can keep track of the latest news on each company.
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