2017 was a big, busy year for dividend raises. Will 2018 be the same?
It is, of course, far too early to tell, but there are encouraging signs. In the first week of this new(ish) year, we had a smattering of lifts from notable companies. Let's look a bit further into the hikes from MSC Industrial Direct (MSM -0.01%), Cabot Oil & Gas (CTRA -0.49%), and Bank of the Ozarks (OZK 0.04%).
Image source: Getty Images.
MSC Industrial Direct
Industrial conglomerate MSC Industrial Direct wins the "highest raise" award out of our inaugural 2018 trio of stocks. The company will lift its quarterly payout by 21% to $0.58 per share.
American industry is on the upswing, although MSC Industrial Direct isn't necessarily benefiting extensively from this. In the company's fourth quarter, net sales crept up by only 1% on a year-over-year basis and net profit dipped by 2% (to $754 million and $60.7 million, respectively). However, both line items beat analyst projections.
Can the company make more meaningful improvements in 2018? This might be challenging, as it seems its scope for raising prices is limited. Still, its customer base is doing well, so it's forecasting better times will come soon, in the form of an 8% increase in net sales for the current quarter and 9% growth in net income.
Due to a decline in operating cash flow, MSC Industrial Direct's free cash flow fell to just over $200 million at the end of fiscal 2017, from the 2016 tally of $313 million. Regardless, the company has lately had more than enough cash in the till to fund both its dividend payments and its share repurchases; there is plenty of room for this dividend increase.
MSM Free Cash Flow (TTM) data by YCharts.
The freshly raised distribution will be handed out on Jan. 30 to stockholders of record as of Jan. 16. Its payout ratio is 54%, while its yield would be 2.4%. The latter figure is comfortably above the current 1.8% average of dividend-paying stocks on the S&P 500.
Cabot Oil & Gas
A very close runner-up for the "highest raise" prize of the week is Cabot Oil & Gas, an exploration and development company active in large plays in Pennsylvania and Texas. Cabot kicked off 2018 by declaring a 20% lift in its quarterly payout to $0.06 per share.
Stronger demand and higher prices for both oil and gas led to encouraging improvements for Cabot in its third quarter, as the prices for both were up substantially from the same period last year. All told, revenue for the period rose 24% to $385 million, while the adjusted bottom line flipped dramatically to a nearly $32 million profit from an almost $17 million loss in the year-ago quarter.
Cabot believes the good times will continue. What is certainly going to help is the Atlantic Sunrise gas pipeline, which was approved by federal regulators last summer. The company is projecting substantial improvements in both production and key financials for this and the following two years.
As its business is tied to energy demand, Cabot's cash flow position can fluctuate quite a bit. It's being generous with the new dividend, as its payout ratio is 86%. I'd advise some caution here; fortunes can change quickly in this industry.
COG Revenue (Quarterly) data by YCharts.
Cabot's upcoming dividend is to be paid on Feb. 7 to investors of record as of Jan. 24. It would yield 0.8% at recent prices.
Bank of the Ozarks
Arkansas-based regional financial group Bank of the Ozarks is featured frequently in this series, as it has a tendency to raise its dividend incrementally each and every quarter. The newest lift -- the 30th in a row -- is a 3% top-off to $0.19 per share. The consistent dividend raising is underpinned by encouraging fundamental growth, due to both acquisitions and organic expansion.
We're a bit in front of the bank's latest earnings release, but going by its most recently reported quarter (Q3), it's doing impressively well. In said period, the company grew its net profit a robust 26% year over year to $96 million, on total revenue that rose 19% to over $242 million. Management pointed out that Q3 was the bank's eighth consecutive quarter of record net income.
Meanwhile total loans and deposits also climbed up nicely, both increasing by 11%.
OZRK Revenue (Quarterly) data by YCharts.
The big engine of growth for the company is its real estate specialties group, a unit that is staffed by a clutch of commercial real estate industry veterans. A good economy and vibrant real estate market are supporting its business, and it seems likely it'll continue to hum along for the foreseeable future. That should keep those fundamentals heading north, and support that slowly but surely rising dividend.
Bank of the Ozarks will dispense its next distribution on Jan. 26 to shareholders of record as of Jan. 19. The new dividend's payout ratio is a very modest 25%, and its yield is 1.5%.
Looking up
We income investors can't be too bullish yet, despite the big lifts from MSC and Cabot. Though we still don't know how 2018 is going to shape up in terms of dividend raises, these very early indications are encouraging.
