May's 5 Dividend Dynamos
Jun 4th 2012 11:59AM
Updated Sep 24th 2012 11:28AM
As promised, this will be the year that I finally pay myself. As such, I'm always on the lookout for companies that are putting shareholders first. In 2011, we witnessed 1,953 dividend increases. Yet as Fool contributor Morgan Housel has pointed out, the overall payout ratio of the S&P 500 recently hit a record-low 29%. This means it isn't enough just to find a dividend; it's about finding a growing and sustainable dividend.
After perusing some of May's finest, I've settled on five companies that I feel went beyond the call of duty to provide for their shareholders last month by increasing their payout or initiating a dividend payment.
New Quarterly Dividend
Previous Quarterly Dividend
|Ralph Lauren (NYS: RL)||$0.40||$0.20||100%|
|Safeway (NYS: SWY)||$0.175||$0.145||21%|
|Tiffany (NYS: TIF)||$0.32||$0.29||10%|
|Barrick Gold (NYS: ABX)||$0.20||$0.15||25%|
|Energizer Holdings (NYS: ENR)||$0.40||None||NM|
Source: Company press releases, NM = not meaningful.
We saw it last month with Coach, and we're seeing it again this month with Ralph Lauren: Consumers have an insatiable appetite for luxury brands at reasonable prices, and they're willing to part with their disposable income to get it.
Ralph Lauren, a clothing and home furnishings provider, reported fourth-quarter results recently that knocked Wall Street's socks off. Revenue grew by 14% while profits screamed past expectations and came in at $0.99. Particularly strong were Ralph Lauren's direct retail stores, which demonstrated 12% year-on-year comparable-store revenue growth. Its handbag line gained significant momentum, according to namesake chairman and CEO Ralph Lauren. This growth is notable given that raw material inflation was extremely high last year, yet it didn't seem to affect Ralph Lauren's results much, if at all.
The big news, of course, was the company's overdue doubling of its dividend to $1.60 per share annually from $0.80. Even with the new dividend yield of 1.1%, Ralph Lauren's payout only amounts to 22.4% of its 2012 fiscal EPS. Assuming its European business doesn't take a swan dive off a tall building, there's reason to believe this dividend will grow further.
Source: Dividata. *Assumes $0.40 quarterly payout.
Grocery chain Safeway is already applauded by many for being one of the biggest charitable givers among corporations, but don't think for a moment it doesn't remember to pay its shareholders, too.
Safeway recently approved a 21% boost in its quarterly dividend to $0.175 per share, the seventh straight year it has boosted its payout. What's really surprising about the magnitude of the dividend increase is that it comes at a time when both commodity and fuel costs are rising and pinching all grocers' margins. While not an ideal situation, Safeway has been implementing measures to boost profits, keep customers coming back to its stores, and reward shareholders.
First, Safeway has been keeping a tight lid on its spending. With food makers raising their prices due to higher fuel and ingredient costs, Safeway has had to adapt by trimming the fat. Secondly, the grocer has responded by passing along price increases for its store-branded products. Store-brand goods are already an incredible deal relative to brand-name products, so it boosts margins without angering its customer base. Finally, Safeway is focusing on its fuel stations. Although fuel isn't a big moneymaker for its business, it makes the shopping experience convenient and keeps customers coming back.
Now yielding 3.7% with a relatively low payout ratio of 34%, there are tangible reasons to believe its dividend could head even higher.
Source: Safeway Investor Relations. *Assumes quarterly payout of $0.175.
When investors look at Tiffany right now, they're seeing a cubic zirconium after its second straight quarterly earnings miss. As for me, I see a diamond in the rough that continues to provide for its shareholders and that looks poised to continue outperforming its jewelry peers over the long run.
In its recently reported quarter, investors sent Tiffany to the guillotine for lowering its fiscal 2012 forecast on the heels of weakened demand in the Americas and higher-than-anticipated expenses. However, if you dig deeper, you'd see that same-store sales companywide still grew 4%, and overall, Tiffany boasts one of the highest sales-per-square-foot ratios of all retailers, trailing only Apple. Asia also provided a strong boost with revenue up 17% and comparable-store sales rising 11% in the region.
What years of outperformance have translated to is the company's 11th dividend hike in just the past 10 years. Perhaps more impressive is that each and every one of these dividend hikes has been by a double-digit percentage! To put it another way, Tiffany has increased its quarterly payout by 700% over the past 11 years, or 20.8% annually! Tiffany's new yield of 2.3% will begin to put it on the income-seekers' radars, and its payout ratio of just 34% likely means many increases could yet be in the offing.
Source: Tiffany Investor Relations. *Assumes $0.32 quarterly payout.
The price of gold may be a lot closer to its 52-week low than its high, but historically speaking, gold miners are rolling in the dough now more than ever. Even with the inflationary effects on expenses of rising labor, fuel, and mine-building costs, most miners have delivered strong operating cash flow and have begun to return some of their profits to shareholders in the form of a dividend. Barrick Gold is one such company that's really embracing the shareholder-first mantra.
Barrick Gold is no stranger to paying a dividend -- it has done so since 1987 -- but until mid-2010 it had done so on just a semi-annual basis. Now, with payouts done quarterly, shareholders are getting more consistent and considerably higher returns. Barrick, for instance, has boosted its dividend twice, by 25% and 33%, in just the past six months. Although gold dividends are ultimately tied to a miner's operating cash flow, which is highly dependent on the average spot price of gold for a given quarter, Barrick's dividend has doubled in just two years.
What's more, Barrick's payout ratio of just 12% signifies that its payout could jump considerably if expenses drop or if gold prices rise even higher. At a forward P/E of just seven and a yield approaching 2%, the world's largest gold producer is bound to turn some heads.
Source: Dividata. *Assumes $0.20 quarterly payout.
It just keeps going, and going, and going; now the Energizer bunny is going to be playing the role of a bank ATM and delivering payments to shareholders on a quarterly basis.
Truly drumming to its own tune, Energizer Holdings has relied on the strength of its personal care segment, which has shown strong growth, and its household products segment to drive consistent cash flow. The company's core personal care products have matured, and it has restructured its battery businesses to be cost-efficient. These are the main reasons it has now chosen to pay out a $0.40 per share quarterly dividend, or roughly 42% of its free cash flow.
In addition to creating a $1.60 per share annual dividend which will yield 2.3% based on Friday's closing price, Energizer's board also authorized the repurchase of 10 million shares of company stock. With organic personal care segment growth of nearly 7% and a lucrative shareholder-first policy now in place, investors would be smart to give the bunny another look.
Finding great dividends is all about value, growth, and sustainability, and these five companies definitely exhibited that in May. Consider adding these names to your free and personalized watchlist so you can keep track of the latest news on each company.
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The article May's 5 Dividend Dynamos originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He loves a dividend payment just as much as the next person. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Coach, Apple, and Energizer Holdings, shorting shares of Tiffany, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that puts investors first.
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