Eight Companies That Are Hiking Dividends

There has been lots of news lately about the number of companies that are cutting dividends to preserve capital. In many cases, we believe these cuts make good economic sense when considering that capital and cash are kings and so hard to come by in the current economy.

And not all dividend news is bad. In fact in selected industry sectors there is a lot of good news. Those sectors with the most dividend hikes are in what we call the "essential services" sectors such as consumer staples, energy, health-care, and utilities. Companies in these sectors produce products that we use every day. In most cases, we don't have to borrow money to buy them. In many respects, these companies and their products have been woven into the fabric of our lives.

In recent weeks eight of the companies that we follow have hiked their dividends. In the consumer staples sector Coke (KO) raised its dividend 8%, Sysco (SYY) 9%, and Colgate (CL) surprised us with a 10% increase. In the energy sector, Kinder Morgan Energy Partners (KMP) recently hiked its dividend on a year-over-year basis by 11%. In the health-care sector, Abbott Labs (ABT) raised its dividend a greater-than-expected 11%, and FPL Group (FPL), a utility, also surprised us with a 6% increase.

In addition to these companies in the essential services sector, there were two additional recent hikes among our holdings. Financial giant Chubb (CB) raised its dividend over 6%, and Praxair (PX) in the materials sector raised its dividend nearly 7%.

You probably did not hear much about these hikes and that makes them even more significant. In this environment, dividend hikes are not being rewarded. Thus, these companies are raising their dividends for two very solid reasons: 1. Their earnings are growing and they are confident enough in their prospects, even in a slow economy, that they are free to increase their dividends; 2. Almost all of the companies mentioned here have long histories of increasing their dividends. It is in their culture.

These are the kinds of companies we prize. They are in solid businesses that produce free cash flows from which they can pay dividends if they choose; they possess a track record of being willing to share their financial successes with their shareholders; and they are confident enough with the unfolding events of the day to raise dividends, even if no one cares but their shareholders.

I'll keep you posted on other companies that are hiking their dividends.

Disclosure: We own all of the companies mentioned here.

Comments

[Owen:]

Good article. I own three of the companies mentioned here for exactly the reasons you describe.

Mar 01 04:07 PM

[Conan the B...:]

It pays to invest in companies with rising dividends but will they continue to do so.

Dow Chemical cut its dividend for the first time since inception, thats 96 years. GE last week. How long can you feel safe that the above mentioned companies will not eliminate their dividends when the onerous Obama Corporate Taxes hit.

For years Corporations have shielded earnings by using writeoffs. Corporations are currently writing off everything they can, including the Kitchen sinks.

Taxable earnings and Incoming taxes are going to be reduced exponentially because taxable earnings are going be shielded by Billions in writeoffs.

Believe me, accounting rules will be changed to disallow the application entirely or there will be some other modification. Obama needs the Income for his programs, being unable to fund them because of the writeoffs being used to shield taxable income will not sit well.

Something will have to change. In my opinion, the dividend payouts by all corporations are based on current accounting practices. Those practices will change and until we know how much, no one can forecast what will remain.

Mar 01 05:26 PM

[mplaut:]

In this environment, investors would do well to consider the return from dividends and weight it more strongly than anticipated rise in prices. A company can pay a dividend or a distribution when it is earning the money to do so. And if it can earn the money, it can continue paying regardless of what the market does.

Dividends are real returns on your pocket and not just hope of price rises. Hope is not a strategy.

Mar 01 07:27 PM

[whisperonth...:]

paultaut, in this economy, we are ALL writing off everything we can, even the kitchen sinks. It is good business practice to get as much for your money (and ours) as you can. As long as they are making a profit, and giving out dividends so that WE can make a profit, this is good. All profit is not bad. Whining because someone has more than you have IS bad.

Mar 01 08:21 PM

[whisperonth...:]

One other point: Every company everywhere marks up their product to a percentage beyond costs in order to cover all expenses and pay all employees, plus make a profit to make improvements, buy new equipment, and show a balance on the books after Mr. Tax Man cometh. This is also not bad. To pay exorbitant amounts for less than stellar performance would be bad, but if the performance is there, they deserve what they can get. (Of course, wouldn't it be interesting if we paid sports figures based on THEIR performance? We might see the costs of attending sports functions go down rapidly in some cities. Detroit comes to mind...)

Mar 01 08:25 PM

[paultheprofit:]

REALLY...funny how ABT & CL insider's are selling shares faster than rats bail from a sinking ship.....they didn't want to stay for that reward....HHHmmm....

Maybe...just...maybe..... want to get that GOOD price by enticing outsider's!

Oh...and of course writing themselve's PLENTY of option's to boot...remind you of ANY BANK insider's???

Mar 01 09:29 PM

[Stone Fox C...:]

Good article. Its nice to see some of the positives in this market where everybody is focusing on all the negatives. Not every company is having problems.

Mar 01 11:05 PM

[Vegasjoe:]

You left out BB&T, which raised theirs as well! Their retired CEO, John Alison, should be Treasury Secretary because he actually knows how to manage and run a bank!

Mar 02 07:45 AM

[Jersey:]

Lets not forget PFE, bring my two largest holding PFE and GE down 50 and 70% respectively. I kinda nauseous.


On Mar 01 05:26 PM paultaut wrote:

> It pays to invest in companies with rising dividends but will they
> continue to do so.
>
> Dow Chemical cut its dividend for the first time since inception,
> thats 96 years. GE last week. How long can you feel safe that the
> above mentioned companies will not eliminate their dividends when
> the onerous Obama Corporate Taxes hit.
>
> For years Corporations have shielded earnings by using writeoffs.
> Corporations are currently writing off everything they can, including
> the Kitchen sinks.
>
> Taxable earnings and Incoming taxes are going to be reduced exponentially
> because taxable earnings are going be shielded by Billions in writeoffs.
>
>
> Believe me, accounting rules will be changed to disallow the application
> entirely or there will be some other modification. Obama needs the
> Income for his programs, being unable to fund them because of the
> writeoffs being used to shield taxable income will not sit well.
>
>
> Something will have to change. In my opinion, the dividend payouts
> by all corporations are based on current accounting practices. Those
> practices will change and until we know how much, no one can forecast
> what will remain.

Mar 02 08:09 AM

[searcher:]

"In my opinion, the dividend payouts by all corporations are based on current accounting practices. Those practices will change and until we know how much, no one can forecast what will remain."

That is why the statement of income and balance sheets need to be consulted, not just the P/E and Yield metrics touted by gurus. Where are the earnings coming from? Where is the income coming from? What financial structure supports their continuation?

Mar 02 11:51 AM

[ROBOT 1:]

It is my opinion Coca cola is not such a great firm they are not diverse. I do not trust Marry Riddle Kevin List or Don Jennings .Ko has killed Union bosses .They commit fraud with people they hire AKA Ken Krys .Ko dose not play nice with any firm they deal with.The products are worth less then the Packaging. Best of all the Carbon Footprint they let us all deal with . The stock is highly over valued but not for long

Mar 02 01:39 PM

[lothianscot:]

What do you mean, "They are in solid businesses that produce free cash flows from which they can pay dividends if they choose; they possess a track record of being willing to share their financial successes with their shareholders"? Willing to share!!

Who are the owners of the company but the shareholders? Are not the day-to-day
senior managers simple contracted employees?

Mar 02 03:26 PM

[User 368000:]

When are you going to follow through with your word and actually buy some of these stocks that you claim are worth purchasing? Your disclosure on this one says you don't own any positions in BAC or C, but you will be buying. You said the same thing in your article on Feb 11th. Are you just pumping these stock to better positions you actually DO own or are you not confident in your own advice.

Either way, put up or shut up, but stop providing advice that you don't see fit to follow.

Mar 02 03:32 PM

[HighDividen...:]

Although I consider myself a "true believer" in terms of dividend stock investing, this market has finally scared me to the sidelines in terms of new money outside of my 403B.

This good news (especially about KMP and FPL) may be just what I needed. Thanks for a very timely article!

Mar 02 04:40 PM

[lawrenceres...:]

What is the projected bottom for Ko in 2009-10?

Mar 02 06:52 PM

[jstratt:]

Thank you for a timely article. Buying long term income generators is one of the few workable strategies at this point. Those companies able to raise dividends and with the strong cash flow to support it are real opportunities. Thanks again for sharing

Mar 02 09:51 PM

[sskell:]

The biggest, safest dividend out there is the mortgage REITs - NLY, MFA, ANH, etc.

Mar 03 08:56 AM

[Sober Realist:]

How about VE - the highest dividend I've ever seen. Any insight on this one?

Mar 03 12:34 PM

[Tim Singleton:]

Carbon footprint, LOL. Gore's hocky stick graph is effectively discredited. All data subjected to the M98 report hailed by the IPCC as 'proof' has been proven to use statistically insupportable methodology that ALWAYS produces a hockey stick curve no matter what data sets to which they are applied, even random data sets.

CO2 level TRAILs the temperature. All this global warming hooey is driven by computer MODELS and even observations of what is actually happening do not follow the accepted models. Only one polar bear pop is decreasing; ALL others are increasing in number.

Argue anything you want about dividends or whatever, but that green crap is irrelevant once you get past its being used to coerce Americans into submitting to an internation carbon tax.

The earth is indeed possibly warming up, but currently not even approaching the temps present when the Vikings colonized Greenland. It has more to do with solar winds and cosmic radiation levels ioniizing the number one greenhouse gas we have and that is WATER. As for CO2 levels, a good hard case can be made that increased levels are better for mankind because it leads to more productive agricultural output. We can stand several orders higher levels of CO2 than we have now quite well.

Global warming, to sum up, is a lie fed to foolish children who want the government sugar daddy to keep the bad ol' bad ols way...whatever the bad ol of the day might be.

On Mar 02 01:39 PM ROBOT 1 wrote:

> It is my opinion Coca cola is not such a great firm they are not
> diverse. I do not trust Marry Riddle Kevin List or Don Jennings .Ko
> has killed Union bosses .They commit fraud with people they hire
> AKA Ken Krys .Ko dose not play nice with any firm they deal with.The
> products are worth less then the Packaging. Best of all the Carbon
> Footprint they let us all deal with . The stock is highly over valued
> but not for long


On Mar 02 01:39 PM ROBOT 1 wrote:

> It is my opinion Coca cola is not such a great firm they are not
> diverse. I do not trust Marry Riddle Kevin List or Don Jennings .Ko
> has killed Union bosses .They commit fraud with people they hire
> AKA Ken Krys .Ko dose not play nice with any firm they deal with.The
> products are worth less then the Packaging. Best of all the Carbon
> Footprint they let us all deal with . The stock is highly over valued
> but not for long

Mar 03 01:48 PM

[User 259493:]

“What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it,” -Obama

Whats is a profit and earnings ratio? What a clown, he has no credibility when it comes to markets and the economy.

Mar 03 02:26 PM

[Sober Realist:]

Obama probably meant to say "price-to-earnings ratios." Scary thing for him to say this sort of thing in a southbound market with a financial system that has "effectively disintegrated."

Mar 03 03:23 PM

[Dean Morel:]

Timbear wrote that "Global warming, to sum up, is a lie fed to foolish children"
While this has nothing to do with this excellent contrarian article ('cos it's optimistic when pessimism rules the day) I can't let such a comment slip by unanswered.
Global warming may or may not exist, but those still arguing against it are simply looking at a detail and missing the big picture of SUSTAINABILITY and ENVIRONMENTAL DESTRUCTION. We can not continue to consume and trash Earth's resources at our current rate. We need to find ways of generating sustainable energy and we need to adopt a cradle to cradle philosophy. While the Earth may be fine and the most resources still plentiful for our lives, think about our children and their children. Think about China and India consuming at half the rate of the USA and I guarantee you'll need to change your underwear!

If you still have doubts then invert your thinking. Is our current model of polluting our atmosphere, our rivers, our oceans and our land is good model? Or could we do better?

Global warming may be wrong, but look around you, our polluted environment and dwindling resources are not.

Mar 03 06:59 PM

[mac.barron:]

Healthy dividends are a vital indicator of a company's strength and in this economy it makes good sense to seek out the best of the best in the dividend department. It is wise to prioritize a given stock's potential to deliver high dividends over its potential to shoot up in price. However, the major point that cannot be overlooked is that if you are getting your dividends in U.S. dollars you will be unable to actually realize any growth in wealth over the next five or so years. Unless you get out of the domestic markets and into foreign markets you will be shoveling sand against the tide.

Mar 03 11:46 PM

[User 369324:]

If you need an example of a company NOT willing to share their financial successes with their shareholders / owners, have a closer look at Cisco. Where have all the profits and all the free cash flow gone during the last 5 years ? At least NOT in the direction toward the shareholders / owners.

Regards Bernie


On Mar 02 03:26 PM lothianscot wrote:

> What do you mean, "They are in solid businesses that produce free
> cash flows from which they can pay dividends if they choose; they
> possess a track record of being willing to share their financial
> successes with their shareholders"? Willing to share!!
>
> Who are the owners of the company but the shareholders? Are not the
> day-to-day
> senior managers simple contracted employees?

Mar 04 09:52 AM

[Camille@The...:]

How nice to read some positive news after all of the focus on compnaies cutting their dividends! Good article. Thanks.

Mar 04 12:22 PM

[Moon Kil Woong:]

Cisco has the most expensive office space of any company on earth. So next time you wonder where their profit went if not to shareholders you know. Also those pesky acquisitions cost a lot. If they actually stopped innovating they wouldn't need to keep buying out people that would make them obsolete.

In general, yes, many companies that want to artificially boost their price play unsustainable dividend gains to get old ladies to invest right before they clobber the stock a few years later. A tried and true very dirty executive measure which has nothing to do with sharing the wealth with shareholders. Buyers beware.

Mar 05 05:00 AM

[ladders11:]

VE is down 80%. That makes the yield higher - please note that most foreign companies don't pay quarterly dividends - VE pays annually. I would be surprised if they were to raise their dividend here.


On Mar 03 12:34 PM Sober Realist wrote:

> How about VE - the highest dividend I've ever seen. Any insight on
> this one?

Mar 05 11:44 AM

[Emerald:]

Many of the firms mentioned have extensive overseas operations.


On Mar 03 11:46 PM mac.barron wrote:

> Healthy dividends are a vital indicator of a company's strength and
> in this economy it makes good sense to seek out the best of the best
> in the dividend department. It is wise to prioritize a given stock's
> potential to deliver high dividends over its potential to shoot up
> in price. However, the major point that cannot be overlooked is that
> if you are getting your dividends in U.S. dollars you will be unable
> to actually realize any growth in wealth over the next five or so
> years. Unless you get out of the domestic markets and into foreign
> markets you will be shoveling sand against the tide.

Mar 05 12:53 PM

[einstein p ...:]

No dividend is safe in this environment as long as the present administration views the current market crash as a "straw" poll.

Mar 05 04:49 PM