Last week was a good one for dividend raises, both in terms of quantity and quality (or at least, prominence). Among the nearly 20 raisers during the period were a few big-name stocks. There were more than a few of these to choose from for this edition of our series, so the choosing wasn't easy.
But select I must, so here is my current trio of winners.
Image source: Getty Images.
Caterpillar
One of the most recognized companies in the industrials sector, machinery and vehicle maker Caterpillar (CAT 1.59%) is adding a penny, or 1%, to its quarterly dividend. The new amount will be $0.78 per share.
That puts the company very close to Dividend Aristocrat status. The Aristocrats are stocks that have increased their shareholder payouts at least once every year for a minimum of 25 years running. With this raise, Caterpillar's streak rises to 23.
The bulls are running around the company's shares these days, as its first-quarter results greatly pleased the market. Caterpillar posted the first quarterly year-over-year growth in sales since 2015 during the period, with the line item advancing 4% to $9.82 billion. Thanks in no small part to restructuring moves, per-share adjusted net profit doubled, to $1.28 from the preceding Q1's $0.64.
CAT Net Income (Quarterly) data by YCharts.
Meanwhile, although the company's free cash flow tally wasn't as high as it's been in certain recent quarters, it was far more than enough to cover the dividend payout. The same can be said for 2016's FCF as a whole, which amounted to nearly $2.7 billion, against dividend payments of almost $1.8 billion, and stock repurchases of $23 million.
Ultimately, Caterpillar is a classic, old-fashioned, conservatively managed company, and it's very likely to stay that way for at least some time. As this latest raise is a very modest one, I think its payout is extremely safe.
Caterpillar's new dividend will be paid on Aug. 19 to stockholders of record as of July 20. It would yield 2.9%, which is generous compared to the current 1.9% average of dividend-paying stocks on the S&P 500.
Target
Speaking of Dividend Aristocrats, Target (TGT 0.18%) is maintaining its status on the list: The company has declared a 3% bump in its quarterly distribution to $0.62 per share.
Unlike Caterpillar, Target hasn't been an investor favorite lately. Much of this is due to the perceived decline of the brick-and-mortar retail segment, due of course to the increasing power and popularity of online merchants such as Amazon.
Those fears aren't necessarily justified with Target, though, which posted a better bottom line than many anticipated. Although comparable-store sales dipped by 1.3%, and revenue by roughly the same percentage (to just over $16 billion), net profit increased by nearly 8% to land at $681 million, or $1.23 per share. That handily beat the average analyst estimate.
As far as free cash flow is concerned, on a trailing-12-month basis, FCF has been just barely sufficient to take care of dividend payouts and the share buybacks the company has been so fond of lately. That said, FCF is on the rise, and those buybacks have come down, so I'd imagine Target will manage to stay Aristocratic. Still, I'd recommend investors keep a watchful eye on those three line items.
TGT Free Cash Flow (TTM) data by YCharts.
Target will hand out its next dividend on Sept. 10 to shareholders of record as of Aug. 16. At the most recent closing stock price, it would yield a relatively rich 4.9%.
FedEx
The top dividend raise out of this trio is from FedEx (FDX 0.12%). The logistics mainstay announced it is increasing its quarterly payout by 25% to $0.50 per share.
That's a confident raise from a confident company. And it's not really a surprise, as FedEx had a fine fourth quarter and fiscal 2017 -- at least, at first blush. For the quarter, revenue saw a nearly 21% year-over-year improvement (to almost $16 billion), while adjusted net profit zoomed 28% higher to land at $1.15 billion.
On an annual basis, the top line rose by 20% to $60.3 billion, and net income was 10% higher at $3.33 billion.
FedEx attributed the quarterly growth to "higher base rates, increased package volume and" -- helping enormously -- "the inclusion of TNT Express results" (FedEx struck a nearly $5 billion deal to buy the European logistics powerhouse in April 2015; the acquisition closed the following May). Its annual improvements were due largely to the same factors.
However, although the top and bottom lines rose steeply in the fourth quarter, the company's free cash flow plunged into the red (to the tune of nearly $1.1 billion). That raises concern about the future of shareholder-pleasing spends like dividend payouts and share buybacks; even before that dive, FedEx's annual FCF figure wasn't high enough to cover the costs of both. So, please beware with this dividend, wary income investor.
FDX Free Cash Flow (Quarterly) data by YCharts.
FedEx is to pay its next distribution on July 6 to stockholders of record as of June 22. The new payout would yield just under 1%.
