These Big Companies Just Raised Their Dividends

SanDisk labors to prove its no flash in the pan, while Kinder Morgan and its relatives add a few cents to their payouts.

Eric Volkman
Eric Volkman
Jul 21, 2014 at 12:00PM

We're now in the depths of the second earnings season of the year, and since many companies declare dividends along with their financials, we saw a host of dividend raises last week. Something in the neighborhood of 20 firms cranked up their distributions. Here's the skinny on three notable increases.

The stock price of memory maker SanDisk (UNKNOWN:SNDK.DL) rose energetically earlier this year, increasing by more than 50% in barely over six months. Keeping the dividend yield up, then, might have been a factor in the company's lifting its payout by a nice 33% to $0.30 per share.

Slightly less pleasant were SanDisk's Q2 figures. Revenue was $1.63 billion, and non-GAAP earnings came in at $1.41 per share. Both were a touch better than analyst expectations of $1.60 billion and $1.39, respectively.

But a stock enjoying such a strong and sustained bull run won't impress with modest beats. Compounding this, the company issued a tepid outlook for Q3 that came in a bit below expectations. This has stoked fears that SanDisk's historically hot growth may be cooling. Not surprisingly, the company's stock was slammed hard in the wake of the earnings release.

Despite that swoon and the uninspiring quarter, SanDisk -- which likes to have plenty of cash on hand -- is relatively flush. At the end of Q2 it had almost $2.7 billion in cash and equivalents, more than enough to pay out that dividend (which will now cost it $68 million or so per quarter).

Some might be concerned that the firm is badly depleting its coffers with the recently announced, all-cash deal it made to buy flash memory solutions provider Fusion-io. That bill of sale is a sizable $1.1 billion.

It should be kept in mind, however, that 1) this is less than half of the above-mentioned cash and equivalents position, and 2) Fusion-io is a firm that, while not yet consistently profitable, grew its revenue more than tenfold in the space of only three years.

Meanwhile, SanDisk's flashy new dividend will be paid on August 25 to shareholders of record as of August 4. At the moment, the yield on that dividend is 1.3%.

The Kinder Morgan Family
Kinder Morgan (NYSE:KMI) is a large energy company with general or limited partnerships in a number of oil and gas assets. It's about to take in a little more pocket change after dividends/distributions were hiked a bit at two of these concerns, and it'll share the largest with its own shareholders.

The company's stable is occupied, in addition to itself, by master limited partnerships Kinder Morgan Energy Partners (UNKNOWN:KMP.DL), and El Paso Pipeline Partners. It also holds the corporation that, in its words, "manages and controls the business and affairs" of Energy Partners, Kinder Morgan Management (UNKNOWN:KMR.DL). All but El Paso have declared dividend increases, which break down like so:

Stock  New div.  Previous div. Increase  Payment date  Record date  New yield 
KMI $0.43 $0.42 2.4% Aug. 15 July 31 4.6%
KMP $1.39 $1.38 0.7% Aug. 14 July 31 6.7%
KMR $1.39* $1.38 0.7% Aug. 14 July 31 6.9%

*Paid in the form of company shares. Source: Kinder Morgan.

Both Kinder Morgan Energy Partners and El Paso have seen their raw distributable cash flow rise along with the American oil boom. The former's grew by 11% on a year-over-year basis to $561 million, while the latter's figures were 9% and $141 million, respectively.

As effectively the parent company of both those concerns, Kinder Morgan benefits from the increases. Across the past year they have boosted the company's cash available to pay dividends by a fat 13% to $332 million. 

Kinder Morgan Management, meanwhile, effectively makes its coin by being a big unit holder in Energy Partners, so the development of its stock price and distribution policy is similar to those of the partnership. Investors should note, however, that Management distributes its payout in the form of company shares rather than cash.

There's little sign that the thirst for American energy or the supply thereof is going to dry up anytime soon. Unless something shocking and unforeseen happens in the domestic oil and gas space, we should expect Kinder Morgan and its siblings to keep doing well and lifting their payouts.