Dividend stocks are on the rise again
Confident companies are raising dividends again, says a U.S. advisory that features three dividend stocks, including one Canadian favourite.
The dividends are in the mail again.
Dividends never go away, of course, but they did go through a rough patch during the financial crisis and recession.
Some very large names slashed their dividends or wiped them out altogether. Many others broke a pattern of raising the payout annually and just kept them where they were.
What a difference a recovery makes.
Dividend growth is off to a fast start this year, writes one Wall Street advisory that keeps close tabs on market numbers.
In the first two months of 2011, no less than 91 companies on the S&P 500 either raised or initiated a dividend, says Dow Theory Forecasts. The average increase has been 14 per cent
That’s the most in the same time frame since 2006 — a year notably free of financial crisis or recession.
The advisory fills in the numbers and recommends three stocks, including one Canadian stock that it has stuck with through thick and thin.
The dividend harvest
Some industries are raising dividends faster than others. Among S&P 500 stocks, the leaders are the consumer discretionary stocks (those that sell the non-necessities of life) and financial stocks.
More than 25 per cent of new or raised dividends in the first two months of 2011 came from consumer discretionary firms.
Another 15 per cent came from financial firms. They are traditionally big dividend payers, of course, but U.S. financial stocks have taken a long time recovering from the credit crisis. And some big banks are still behind.
“Before major banks can begin restoring the dividends they cut during the downturn,” writes the advisory, “the Federal Reserve wants proof they can absorb losses in the event of another economic collapse.”
When the banks get up to speed, the dividend harvest will rise even more. The S&P 500 generated $206 billion in dividends last year. That’s still 17 per cent less than the record high of 2008.
Overall, however, the improvement is considerable. The rolling (or annualized) 12-month total for dividends has risen for 17 consecutive months. In the 12 months ended February, there were 282 dividend hikes.
Here are three of the hikers that this advisory likes best.
Generosity to shareholders
This advisory has not only kept Rogers Communications (TSX-RCI.B; NYSE-RCI) on its buy list for some time, it has consistently trotted it out as a recommended dividend stock.
While acknowledging the fierce competition Rogers faces in the wireless wars, the advisory is satisfied with the company’s prospects — and happy with its generosity to shareholders.
The firm “returns nearly half of its earnings to investors through its dividend,” it writes. It yields a solid 4.1 per cent on the $1.42 payout.
Rogers is also buying back big blocks of shares — $1.5 billion worth over the next 12 months — and that will push up earnings per share.
Revenue was up 8 per cent last year, but wireless revenue per user slipped. Similarly, while revenues in media and cable should rise next year, wireless is expected to be flat again.
“Nevertheless, Rogers’ long-term outlook seems intact, and the company is capable of topping the consensus annual profit-growth estimate of 7% over the next five years.” The stock is a Long-Term Buy (best buy over 24 months). Coming off a 52-week low last week, it trades at $34.78.
17 years in a row
Comcast (NASDQ-CMCSA) is in the same business as Rogers, if you subtract the wireless segment. It has an enormous cable network across the U.S. and owns a number of popular channels.
“For now, chatter over cable’s demise is not evident in the industry’s results,” writes the advisory, “partly because television viewing continues to rise.” The way people watch may be changing, but Comcast has kept up with that shift, “most recently designing an application that lets subscribers watch videos on their iPads.”
After a nine-year gap, Comcast restored its dividend in 2008. Since then, it has increased by almost 80 per cent, to $0.45. The yield is not as high as Rogers’, at just under 2 per cent, but the stock is cresting near 52-week highs at $24.39. It is also a Long-Term Buy.
Ross Stores (NASDQ-ROST) is one of those consumer stocks that have been kicking up the dividend. It didn’t start yesterday — it has raised the dividend 17 years in a row.
Ross thrived during the economic crisis and through the recovery with its discount outlets. It sells apparel and home accessories at as much as 70 per cent off department store prices.
It also stays ahead of inflation by purchasing goods three months in advance. Growth has been ahead of management’s own expectations.
The $0.88 dividend yields 1.3 per cent and this stock is both a Focus List Buy (best for the next 12 months) and Long-Term Buy. It, too, is close to its year long high, at $69.24.
Like crocuses after a long winter, dividends are a welcome sign of renewal and recovery. The faster they grow, the brighter the outlook for investors.
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