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These Stocks Just Raised Their Dividends

By Eric Volkman – Jun 16, 2016 at 9:23AM

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A star logistics company, a major retailer, and a big health insurer comprise this week's trio of payout lifters.

Well, that's better. In contrast to its dozy predecessor, last week saw a nice little spate of dividend increases. It wasn't quite a waterfall, but several high-profile names did enhance their distributions. Three notable ones are FedEx, Target, and UnitedHealth Group.



How about an express delivery of a higher dividend? For FedEx (FDX -2.52%) shareholders, it's coming to their doors soon. The logistics giant has declared an upcoming quarterly payout of $0.40 per share -- a beefy 60% improvement over its predecessor.

The company is a few days away from releasing Q4 and full-year 2016 earnings, so we're still a bit in the dark as to whether the hike is justified, given the latest results. Dialing back a bit, in recent quarters the company has largely met or exceeded the average analyst estimates for quarterly profit.

If that happens for Q4, it would represent very healthy growth for the company. Analysts are projecting a net profit of $3.29 per share -- 24% higher than in the same quarter of 2015.

That's entirely realistic, as FedEx performed well in Q3. On a year-over-year basis, the company managed to grow its total revenue by 8% (to nearly $13 billion), fueled by a 30% increase in the ground segment that's responsible for over one-third of its top line.

FDX Revenue (TTM) Chart

FDX Revenue (TTM) data by YCharts

Assuming FedEx can keep up that kind of momentum, the new dividend looks rather safe at the moment. It is to be distributed on July 1 to shareholders of record as of June 16. At the most recent closing stock price, it would yield just over 1%. That's some distance below the current 2.1% average of dividend-paying stocks on the S&P 500.


As per its habit over the past few years, the popular retailer has enacted an annual raise of $0.04 to each of its upcoming quarterly dividends. That shakes out to a 7% increase, resulting in a $0.60 per share payout for Target (TGT -2.24%) investors.

That doesn't seem to be providing much love for the stock, though. The retail sector isn't a hot one for investors at the moment, given disappointing recent results from industry stalwarts such as Macy's and Kohl's.

Deservedly or otherwise, Target has been lumped into that group following a Q1 that saw revenue dip by 5% on a year-over-year basis on basically flat same-store sales and bottom line growth. Earnings actually came in above analyst expectations, but guidance for the current quarter was well below the market's projections.

Still, in terms of free cash flow, Target generally stays well in the black and in its fiscal 2015 had more than enough to take care of the dividend. Life isn't easy for big retailers at the moment, but the company still gets enough custom and has plenty of dosh in the bank to at least maintain its current distribution, in my view.

TGT Free Cash Flow (TTM) Chart

TGT Free Cash Flow (TTM) data by YCharts

Target's freshly raised dividend will be paid on Sept. 10 to stockholders of record as of Aug. 17. It yields 3.6% at the current share price, which is relatively high for the retail sector.

UnitedHealth Group

The fundamentals are in fine share at medical insurer UnitedHealth (UNH -0.74%), allowing the company to give the usual once-per-year lift to its quarterly payout. This time, it's increasing it by 25% to nearly $0.63 per share.

UNH Dividend Chart

UNH Dividend data by YCharts

Although the health insurance space remains a bit challenging now because of the effects of Obamacare, UnitedHealth has done an excellent job of navigating the changes. Q1's top line rose a sprightly 25% (to almost $45 billion), with net profit advancing by 14% to just over $1.6 billion.

Those improvements were due in no small part to the sterling performance of Optum, the company's health services division. But UnitedHealth's more traditional insurance business did just fine, too, with a revenue increase of 10% over the same quarter of the previous year.

As income statement fundamentals go for the company, so goes cash flow. Both operating and free cash flow figures have risen nicely over the past few years, providing an increasingly fatter cushion for the dividend. This insurer is doing very well in the areas where it counts, and there's no reason to think it can't maintain that payout raise habit going forward.

UnitedHealth's next dividend is to be handed out on June 28 to holders of record as of June 17. It would yield 1.8% on the most recent closing share price.

Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
$505.04 (-0.74%) $-3.79
FedEx Corporation Stock Quote
FedEx Corporation
$148.47 (-2.52%) $-3.84
Target Corporation Stock Quote
Target Corporation
$148.39 (-2.24%) $-3.40

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