Dividends say a lot about a company's health and the level of confidence management has in its future. Tiffany (TIF), Viacom (VIAB), and Flowers Foods (FLO 2.25%) raised their dividends last week, so let's see if these payout increases can help us find out what the future holds for investors in these companies.
Tiffany is shining globally
Tiffany last week delivered a truly impressive earnings report for the first quarter of fiscal 2014. The jeweler also rewarded investors with a 13% dividend increase, bringing the quarterly payment to $0.38 per share.
Source: Tiffany.
After this increase, Tiffany is paying a dividend yield in the area of 1.6%. This is not much when it comes to income, but the payout ratio is remarkably low, near 35% of earnings guidance for the current year, which means Tiffany has a lot of room to continue raising payments.
The business is clearly firing on all cylinders: Tiffany announced a 13% year-over-year increase in sales during the last quarter to more than $1 billion, while same-store sales jumped 11%. Strong pricing and cost discipline enabled Tiffany to increase its profit margin during the period, and earnings per share grew by a whopping 50% year over year.
Sales in the Americas increased 8% during the quarter. But the Asia-Pacific looks particularly exciting for future growth opportunities; sales in the region grew 17% to $261 million on the back of a 10% increase in comparable-store sales. Revenue in Japan surged 20% as many consumers sped up their purchases in reaction to a coming increase in the country´s consumption tax rate.
Considering the company´s comfortably low payout ratio and rock-solid financial performance, investors in Tiffany have strong reasons to expect sustained dividend growth in the years ahead.
Viacom is fine-tuning for growth
Viacom on Wednesday announced a 10% dividend increase, raising the quarterly payment from $0.30 to $0.33 per share. The media giant's stock yields 1.6% at current prices, and the payout ratio is remarkably safe in the area of 25% of average earnings estimates for fiscal 2014.
Thanks to the popularity of cable network properties such as Nickelodeon, Comedy Central, and MTV, Viacom is performing quite well in the media networks segment, with revenue increasing 6% to $2.38 billion during the quarter ended on March 23. On the other hand, filmed entertainment revenue declined 12% to $831 million due to lower carryover revenue from prior releases.
Source: Viacom
However, film studio Paramount is launching several important movies this summer, which should generate accelerating revenue for Viacom over the middle term. Upcoming names include Transformers: Age of Extinction, Hercules, and Teenage Mutant Ninja Turtles.
Solid performance in the media networks segment, combined with a promising prospects for growth in the film division, bode well for Viacom's growth. Besides, the comfortably low payout ratio means the company should continue rewarding shareholders with growing capital distributions for years to come.
Blossoming cash flow from Flowers Foods
Flower Foods is the second-largest baker in the U.S., behind Grupo Bimbo. The company owns brands such as Nature's Own, Wonder, and Tastykake. Management estimates that Flower Foods has a market share of nearly 14% in the U.S. fresh bread and rolls market thanks to its 47 bakeries in 16 states and a distribution network providing access to 79% of the nation's populace.
The business may not sound as glamorous as Tiffany's luxurious international growth prospects, or as fun as Viacom´s opportunities for accelerating growth due to new movie launches. However, Flower Foods is a consistent performer in a dependable business, and that is a valuable trait when it comes to evaluating safety and reliability among dividend-paying companies.
Last week, Flower Foods raised its dividend by 6.7% to $0.12 per share quarterly, bringing the dividend yield to 2.3%. The payout ratio is near 47% when compared against the average earnings estimate for Flower Foods during 2014.
President and CEO Allen L. Shiver noted in the earnings press release that the company has generated enough cash flow to repay debt, finance its capital investment needs, and reward shareholders via both share buybacks and dividend payments:
In the first quarter of 2014, we again generated strong cash flow from operations, which allowed us to pay down $81.2 million in debt, pay $24 million in dividends to shareholders, invest $23.6 million in capital improvements, and acquire $9.5 million in common stock as part of the stock repurchase plan. The board believes the dividend is an appropriate way to allow our investors to participate in the company's success.
Foolish takeaway
When dividends talk, investors should listen. Tiffany is generating impressive financial performance across the board and translating that cash flow into growing dividends for shareholders. Viacom was hit with falling sales in the movies division during the last quarter, but its growing dividend indicates management has confidence in the prospects for improved performance via new launches from Paramount. Finally, Flower Foods is generating reliable cash flow and dividend payments over time.
