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 August's finest, I've settled on five companies that I think 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
Leggett & Platt
Sunoco Logistics Partners
|Spectrum Brands Holdings
Source: Individual company press releases.
NM = not meaningful.
Who dared to doubt that Cisco Systems couldn't grow despite challenges in Europe? Basically everyone! None of the network equipment makers had previously given any signals to expect strength from Cisco's report, and Cisco itself had even exercised caution in its guidance in the previous quarter. Well, throw that caution to the wind.
Cisco's John Chambers outlined plans to return at least 50% of free cash flow to shareholders in the form of share buybacks and dividends going forward. While I would much prefer to see the money flow straight to shareholders, this move nonetheless resulted in a 75% immediate boost to Cisco's quarterly payout and jumped its yield to 2.9%. Cisco's quarterly stipend has risen by 133% in just over the past year as the company revamps its hardware to handle an influx of cloud and big data center orders. If the company's estimates, which call for up to $241 billion in spending on the cloud by 2020, prove accurate, then this dividend could head dramatically higher.
Leggett & Platt
A 4% dividend increase from a component and parts supplier for residential furniture and retail store fixtures ... wake me up when something exciting happens, right? Wrong! Leggett & Platt may not offer the most exciting business, but it's quietly raised its dividend for 41 straight years at a compound annual growth rate of 13%, placing it among the elite of all dividend aristocrats. Its current yield of 4.9% isn't too shabby, either!
Behind the move higher is a multiyear restructuring effort by the company to reduce its fixed-cost structure while still leaving itself the ability to expand capacity if needed. Leggett & Platt has also worked diligently to keep debt levels reasonable and within the company's net-debt-to-net-cash target ratio of 30%-40%. Combine strong pricing power with a company well positioned for the next economic boom, and you have the makings of a long-term winner.
*Assumes quarterly payout of $0.29.
Yes, a chemicals company, and no, I'm not trying to put you to sleep with typically slow-moving sectors. Westlake Chemical benefited in a big way from a tax break and a loan refinancing in the second quarter such that it felt compelled to reward shareholders with a 154% increase in its quarterly dividend just weeks later.
The move makes sense given that Westlake's business, while affected by its input costs and the rising or falling price of its products, is relatively stable regardless of the economy expanding or contracting. For instance, its resins and PVC business, tied primarily to the housing sector, had difficulty, while its olefins segment clocked in with record earnings thanks in part to increased shale gas drilling. The company plans to use these low natural gas prices to further expand its operations and to maintain a low-cost advantage over its peers. With $250 million in debt now refinanced 300 basis points lower and a minuscule payout ratio of 15% based on this year's earnings, Westlake can afford to move its dividend even higher.
*Assumes $0.1875 quarterly payout.
Sunoco Logistics Partners
If you haven't been keeping up on the work of my Foolish colleague Aimee Duffy, then get on it, because she makes a strong case, week in and week out, for why midstream oil and gas operators -- those that own the pipelines for transporting and storage tanks for holding these resources -- are expected to see a boom in investments.
Sunoco Logistics and its remarkable dividend history speak volumes to this trend. Sunoco Logistics dividend has grown in 29 straight quarters! For you skimmers, allow me to reiterate that -- 29 consecutive quarters of dividend increases! The company's latest quarter highlighted net income growth of 60% and pointed to strong future cash-flow generation. Because Sunoco is transporting resources from its own backyard, unlike East Coast pipelines, which pay higher fees associated with imported oil, Sunoco retains beefier margins and can pass those along as more potent dividends.
Dividends before 2012 adjusted to reflect 3-for-1 split.
Spectrum Brands Holdings
The Energizer Bunny isn't the only battery maker to keep going and going. Following in the footsteps of Energizer Holdings, which initiated a quarterly dividend payout in May, Spectrum Brands, the company behind brand-name battery Rayovac, as well as personal-care and consumer-goods names Remington and George Foreman grills, initiated a $0.25 quarterly dividend and announced a $1 special dividend as well.
Spectrum wants to send a message that its business is capable of generating consistent cash-flow growth and thinks initiating a dividend is the right way to get this message across. Acquisitions have been a major boost to Spectrum's bottom line, but pricing power, cost controls, and new product introductions have also lent their hand in the company reporting a more than doubling in profits in its most recent quarter. Spectrum's projected yield of 2.8% actually will place it higher than rival Energizer, which is currently yielding 2.3%. Now that's what I call a charge for shareholders!
Finding great dividends is all about value, growth, and sustainability, and these five companies definitely exhibited that in August. Consider using the following links 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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