This time of the year usually isn't full of dividend raises. True to form, there weren't a great many last week.
Yet among those few and proud were a pair of famous stock market mainstays. That's an encouraging reminder that dividend hikes are an around-the-calendar phenomenon and are not limited to the traditional earnings seasons. Let's share the happy news and take a look at this trio of dividend raisers.
FedEx (FDX -0.60%)
From the beginning of this decade, the logistics giant has habitually lifted its quarterly dividend every year around this time. 2015 is no different, with FedEx delivering a 25% increase in the payout to $0.25 per share.
The company has some strong fundamental tailwinds at its back. A key input, fuel for its planes and trucks, has become cheaper following last year's steep drop in crude oil prices. Meanwhile, cost-cutting measures have juiced the bottom line, and this past holiday season was a strong one for its deliveries.
As a result, in FedEx's fiscal Q3, net profit skyrocketed 53% higher on a year-over-year basis to $580 million ($2.01 per share). Revenue increased 4% to nearly $12 billion.
However, the company has warned that Q4 results -- which are to be announced Wednesday -- could be negatively affected by a recent, modest recovery in fuel prices and the weakened U.S. dollar.
Meanwhile, a heavy drag on cash flow for FedEx will come from its pending acquisition of TNT Express (NASDAQOTH: TNTEY). Roughly two-thirds of the $5 billion cost of the buy is being funded via debt, according to the company. It says it can pay the rest -- $1.7 billion -- with cash.
The company has traditionally boasted strong dividend coverage (free cash flow in fiscal 2014 was $731 million versus $187 million in total distributions paid), so I think FedEx will at least manage to maintain that dividend. But investors should keep a sharp eye on how the company's cash flow situation develops.
FedEx's new dividend is to be handed out on July 2 to shareholders of record as of June 18.
Caterpillar (CAT -6.76%)
Like FedEx, Caterpillar has made a habit of lifting its quarterly payout at more or less the same time every year. Last week, the machinery giant announced a 10% increase in its distribution to $0.77 per share.
But the general trend of Caterpillar's numbers is down, not up. That's to be expected, as two crucial customer segments for the company -- mining and oil/gas exploration -- are both slumping because of softness in commodity prices.
As a result, Q1 revenue fell 4% on a year-over-year basis to $12.7 billion. Net profit grew by 20% to $1.1 billion, but a $120 million chunk of this came from the sale of a stake in a logistics business.
The company isn't expecting great things from the remaining quarters. All told, for fiscal 2015, it's projecting per-share net profit of $4.70, a 25% drop from the preceding year's $5.88.
That said, Caterpillar has managed its cash well over the years. As a manufacturing company, it carries a fairly significant debt load, but it has always managed to offset this with native cash flow to keep its operations humming. I'd be a bit concerned about the fundamentals -- particularly the declining free cash flow. However, I think the company's dividend is important to it, and thus it'll find a way to at least keep its payout at the current enhanced level.
The upcoming Caterpillar dividend is to be distributed on Aug. 20 to stockholders of record as of July 20.
Casey's General Stores (CASY 1.15%)
Walk into a convenience store; walk out with a dividend raise. So it is with this company, which just hiked its quarterly distribution by 10% to $0.22 per share.
Casey's General Stores is an operator of the eponymous outlets, which essentially blend the concept of a modern gas station convenience store with the throwback look of an old-timey neighborhood market. It's an interesting concept, and it works, judging by how consistently profitable the company's been over the years.
2015 revenue was actually down slightly from the previous year, but net profit zoomed well ahead by 42% (to almost $181 million). Improvements were recorded in every major product category (gas, prepared food/fountain, grocery/other merchandise) that exceeded the company's sales targets. This was because of what it terms "a variety of initiatives" at the stores and a robust expansion program.
For 2016, Casey's is targeting even higher sales improvements in all three categories, and it should build or acquire more outlets than the 81 that opened for business last year.
That would improve free cash flow, which could probably use a boost. In both of the preceding two quarters, it was negative to the tune of nearly $40 million. The pre-raise dividend payout totaled about $7.7 million per quarter, meanwhile. I'd be a bit concerned about that line item if I were an investor, and because of it -- despite the encouraging operating results from the company -- I'm not sure I'd count on the viability of the payout.
That distribution will be paid on Aug. 17 to shareholders of record as of Aug. 3.
