These Stocks Just Raised Their Dividends

For this week's selection of distribution boosters, we've got a popular airline, a regional banking group, and a household products specialist.

Eric Volkman
Eric Volkman
May 21, 2015 at 1:14PM
Investment Planning

Last week was relatively quiet in terms of companies raising their distributions. In contrast to the preceding period, only a handful of shares saw dividend lifts.

Most of these raisers were lesser-known stocks... but not all. Here are three familiar names about to make their shareholders incrementally richer.

Southwest Airlines (NYSE: LUV)
This veteran hauler, a longtime favorite of investors, has added a lot of altitude to its quarterly dividend. It announced that it will now pay nearly $0.08 per share, or 25% higher than the previous distribution.

Times are flush for the airline industry. It was already humming along nicely thanks to ongoing consolidation among the leading players as wells as the precipitous fall in oil prices last year.

Fuel is, by far, the top cost item for airlines. In its most recent quarter, Southwest paid a bit over $2 per gallon for its gas, compared to $3.10 in the same quarter last year. That savings of 35% helped put some real zip into net profit, which at $453 million nearly tripled on a year-over-year basis.

Southwest is using this momentum to expand its range. It's adding eight new international flights from Houston's Hobby Airport to destinations in Mexico and other Central American countries (plus Jamaica and, interestingly, Africa's Liberia). Save for Liberia, these flights -- Cancun and Mexico City, to name two -- should see healthy demand.

Looking at its cash position, Southwest is actually fairly stingy when it comes to its payout. Even a 25% raise won't make too much of a dent in its free cash flow. As a result, I wouldn't worry at all about the sustainability of its heightened distribution.

Southwest's upcoming dividend is to be dispensed on June 24 to shareholders of record as of June 3.

KeyCorp (NYSE: KEY)
A reliable dividend payer and serial raiser, regional banking group KeyCorp has effected the latest lift in its quarterly dividend. This is to rise by 15% to almost $0.08 per share. As with every major American bank, KeyCorp's capital allocation plans are subject to approval by the Federal Reserve. These were unhesitatingly granted by the regulator following the latest round of stress tests.

That's because the company is in good shape. Although its first-quarter net profit was 4% lower on a year-over-year basis, at $222 million it's still well in the black. In addition, considering that KeyCorp's net revenue was just over $1 billion, this equates to an impressive 22% profit margin.

The bank has done a fine job boosting its loans in certain categories, particularly agricultural, commercial, and financial lending. This trio rose by a collective 12% in the quarter.

It isn't easy for lenders to make money in the current low interest rate environment, so it's impressive that KeyCorp has managed to pull off that kind of loan growth. In the near future, a widely expected rate hike from the Fed should help the bank and its peers widen profitability from lending.

Meanwhile, the consolidation of Pacific Crest Securities -- a 2014 acquisition -- should provide a nice boost to the activities of KeyBank Capital Markets, the company subsidiary that concentrates on higher-margin offerings. The bank has indicated that it'll maintain the newly raised dividend for the moment, and raise it again in the future. Considering its good track record of paying out dividends, plus its encouraging fundamental performance of late, I'd take the company at its word and assume the payout will be safe for at least a good while.

KeyCorp will pay its new dividend on June 15 to stockholders of record as of June 2.

Clorox (NYSE: CLX)
Our last stock for the week is the durable household products company Clorox, which has enacted the latest in a long series of distribution raises. That's no surprise, as Clorox is a dividend aristocrat -- one of the very few companies that has lifted its payout at least once per year for a minimum of 25 years running. The latest hike is a 4% bump to $0.77 per share.

Clorox won't have to scrape desperately to come up with the extra cash. In its most recently reported quarter, the company handily beat analyst expectations, posting a net profit of $174 million on $1.4 billion in revenue. The former number was a robust 27% higher on a year-over-year basis.

The improvements were due to that always effective one-two combination, higher prices and increased demand. The firm's household division was a good performer, reporting sales that were 5% higher than in the same period of 2014.

The good times should continue to roll. In announcing the better-than-expected quarter, the company also raised its guidance for fiscal 2015. It now believes that total sales could increase by up to 2% over the 2014 figure, up from the former ceiling of 1%. It also added $0.05 to the bottom of its EPS projection for the year, putting it at $4.45 to $4.55.

Meanwhile, Clorox's long history as a dividend aristocrat bodes well for the viability of its payout, not to mention the fact that its free cash flow typically exceeds total distribution payments by a factor of at least two to one. So I think this dividend is extremely secure, and should continue to be so well into the future.

The next installment of said dividend is to be handed out on August 7 to holders of record as of July 22.