3 Recent Dividend Increases You Need to Know About: Macy's, Clorox, and Safeway

Dividend announcements provide a lot of information about a company's fundamental strengths and management's level of confidence on the future of the business. For this reason, investors need to closely monitor dividend-related news when making investment decisions. Macy's (NYSE: M  ) , Clorox (NYSE: CLX  ) , and Safeway (NYSE: SWY  ) announced dividend increases last week. Let's take a look at these companies and what recent dividend hikes mean for investors.

Macy's successfully sailed through the winter storm
The unusually cold winter and weak consumer spending have affected many companies in the retail business lately, and Macy's is no exception. However, the company is still generating sound financial performance in spite of challenging industry conditions, and management is optimistic regarding demand in the middle term.

M Dividend Chart

M Dividend data by YCharts.

From Macy's latest earnings press release:

Overall, business trends were soft in January through March, with the exception of the Valentine's Day shopping period. The trend improved in April when the weather began to turn in northern climate zones. We see this as a good sign moving forward into the second quarter.  

Sales during the quarter ended on May 3 fell by 1.7% versus the same period in the prior year, but earnings per share were better than expected, with an increase of 9% to $0.60 per share. In addition, management announced a big increase of 25% in dividends to $0.3125 per share versus $0.25 per share quarterly.

Macy's also increased its share repurchase plan by $1.5 billion, bringing the total remaining authorization to approximately $2.5 billion.

The company has actively raised dividends since 2010, when the quarterly dividend was only $0.05, increasing more than sixfold since them. The dividend yield is currently 2.1%, and the payout ratio is quite comfortable at less than 28% of earnings estimates for the current fiscal year.

Clorox offers a clean and shiny track record of dividend growth
Clorox announced on May 12 a 4% increase in dividends, from $0.72 to $0.74 per share. This increase is not as big as the one announced by Macy's, but Clorox's yield is notoriously attractive at more than 3.3%.

Besides, Clorox offers one of the most impressive track records of dividend growth in the market. The company has raised its dividends each and every year since 1977, demonstrating remarkable financial strength through good and bad economic times. 

CLX Dividend Chart

CLX Dividend data by YCharts.

Clorox owns a leading portfolio of recognized brands in defensive businesses like cleaning and household products, including popular names such as Clorox, Glad, Hidden Valley, Kingsford, and Brita, among others. The company owns the first or second market share position in 90% of the markets in which it operates, and this leadership position in stable and defensive industries means reliable cash flows for investors.

Clorox has a dividend payout ratio in the area of 68% of earnings, which is sustainable for such a solid and resilient dividend juggernaut.

A fresh dividend increase from Safeway
Safeway is in the midst of a restructuring, as the company is preparing to be acquired by private equity firm Cerberus Capital Management. If the deal goes through, Safeway shareholders will receive $32.50 per share in cash plus other distributions with an estimated value of $3.65 per share, a premium of nearly 5% versus the current stock price in the area of $34.

The groceries business is remarkably challenging and competitive, and Safeway is facing difficulties when it comes to generating sales growth lately. Total revenues during the quarter ended on March 22 increased by 1% to $8.26 billion, while identical-store sales excluding fuel increased by 1.8% on the back of a 1% increase in price per item and a 0.8% increase in volume.

SWY Dividend Chart

SWY Dividend data by YCharts.

But this is not stopping Safeway from increasing its dividends. The company announced last week a 15% increase in payments, from $0.20 to $0.23 quarterly per share. The dividend yield stands at 2.7% after the recent increase.

The dividend payout ratio near 83% of earnings does not leave much upside room, though, so future dividend increases will probably be more in line with earnings growth in the coming years.

Foolish takeaway
Macy's dividend increase confirms that the company is a top-notch player among department stores, generating strong profitability and growing dividends even under challenging conditions for the industry. Clorox is a rock-solid dividend juggernaut generating reliable dividend growth over the long term and paying an attractive dividend yield. As for Safeway, the recent dividend increase is a sign of confidence, but the dividend growth rate may slow down in the future, as the payout ratio does not leave much upside room.

The best dividend stocks for the coming decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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Related Tickers

8/28/2015 4:01 PM
CLX $111.69 Up +0.26 +0.23%
The Clorox Company CAPS Rating: ****
M $59.00 Down -0.05 -0.08%
Macy's, Inc. CAPS Rating: **
SWY $0.00 Down +0.00 +0.00%
Safeway, Inc. CAPS Rating: **